The SME Financing Gap
Benjamin Rieder@benjrieder
+5.2%
since Oct 6
The idea
I believe banks have stepped back from small-business lending while private credit scaled upmarket, leaving a growing financing gap just as entrepreneurship and re-shoring push SME credit demand higher. I'm expressing this through embedded lenders sitting on live transaction data (34%), underwriting infrastructure and credit software (20%), tech-first SME banks (15%), payments rails (15%), and credit-data ballast (9%), with 7% held in cash. I'm not betting on any single name winning the lending share, and I'm treating this as a decade-long structural shift rather than a trade.
What it owns
- These platforms see every sale a small business makes, enabling fast lending decisions based on live transaction data rather than traditional paperwork. · Block, Inc.Lends to Square sellers against sales flowing through its own registers, using live transaction data to make fast underwriting decisions at costs banks cannot match., Shopify Inc.Advances cash to merchants against their sales data, eliminating the branch visits and loan officers traditional banks require., Toast, Inc.Runs registers and payroll for restaurants while lending against daily transaction visibility, serving a segment traditional banks rarely underwrite., PayPal HoldingsLends to its own payment merchants using real revenue data instead of traditional paperwork, leveraging visibility into actual transaction flows., Shift4 PaymentsProcesses payments for restaurants and small merchants, providing the transaction foothold that embedded lending is built on., BILL HoldingsSees small businesses' invoices and payments, providing the cash-flow visibility that enables cheap underwriting and embedded lending products.34%
- Software and analytics that let any lender underwrite and monitor small businesses efficiently, serving as foundational tools across the lending ecosystem. · nCino, Inc.Sells loan origination and management software to banks modernizing their processes, so even incumbents re-entering SME lending pay for its technology., Pagaya TechnologiesSells AI-driven underwriting to lenders and funds loans through a partner network, providing infrastructure that processes volume including small-business credit., Fair Isaac CorporationThe scoring standard nearly every lender uses, so growth in small-business credit drives demand for its analytics regardless of which lender originates loans., Q2 HoldingsProvides digital banking and lending platforms to smaller banks and credit unions, allowing them to modernize their small-business offerings.20%
- Specialist lenders built on modern underwriting and lean digital operations that serve small-ticket loans traditional banks and large private credit funds avoid. · Enova InternationalIts OnDeck arm lends directly to small businesses online using proprietary underwriting models, filling the gap for small-ticket loans incumbents skip., Live Oak BancsharesA branchless bank built around SBA lending, proving that a lean digital operation can serve SMEs more profitably than incumbent banks., Axos FinancialRuns a branchless bank without legacy cost structure, enabling it to underwrite small-business loans profitably at scale.15%
- The networks and accounting layers that small businesses increasingly rely on, generating steady volume growth as cash spending formalizes onto digital channels. · Visa Inc.The network that small-business payments flow through, gaining volume as cash spending shifts onto cards regardless of which lender provides credit., Mastercard IncorporatedGains volume as small businesses shift from cash to card payments, benefiting from formalization trends that are independent of which lender wins., Intuit Inc.Sees small-business financials through QuickBooks and lends against them, combining accounting visibility with embedded credit products.15%
- Data bureaus that monetize new datasets flowing into small-business credit decisions, benefiting from ecosystem growth regardless of which lender wins share. · Equifax Inc.Owns deep business credit files that every new lender needs to underwrite small businesses, regardless of who wins market share., TransUnionSells credit data and alternative data that makes thin-file small businesses underwritable, getting paid by whichever lender originates the credit.9%
- Cash7%