Small and medium businesses (SMBs) are facing pressures on all fronts—tight cash flow, rising costs, and challenges in accessing capital. That’s where fintech steps in, offering business lending solutions tailored to SMB needs in a way that traditional banks often cannot match. In 2025, we’re seeing fintech reshape how SMBs grow, manage risk, and scale operations. This article explores how and why.
- The unmet financing gap for SMBs
Despite their central role in economies, SMBs often struggle to secure credit through traditional channels. In India alone, 63 million MSMEs contribute around 30% of GDP, yet micro-enterprises often remain underserved: only about 16% of them access formal bank credit. Globally, small business lending is undergoing fundamental shifts to bridge these gaps.
The constraints of legacy lending are well known: heavy documentation, slow processes, rigid collateral requirements. These friction points leave many promising SMBs sidelined. Fintech’s entry, especially in markets that lacked infrastructure, has begun to change that.
- Key fintech innovations fueling SMB empowerment
Table of Contents
a) AI / data-driven underwriting
Fintechs are using machine learning models and alternative data (transaction histories, supply chain data, social signals) to assess creditworthiness more dynamically. This reduces reliance on static credit scores and opens lending to SMBs with non-traditional profiles.
For example, researchers have successfully used synthetic data augmentation to classify SME transaction categories, improving cash flow lending accuracy.
b) Embedded finance and API-first architecture
Gone are the days when SMBs needed to leave their accounting or ERP tools to apply for a loan. Fintechs are embedding lending features directly into business platforms (e.g., accounting software, e-commerce dashboards). This lets business owners access credit within their workflows.
c) Automation across operations
From origination to underwriting to collections, automation reduces delay and error. In India, digital lending is expected to expand rapidly, with AI, real-time payments, and compliance automation among the top trends.
d) Flexible and revenue-based financing
Instead of rigid fixed payments, some fintechs now link repayment to revenue flows—payments scale with business performance. This lowers strain during lean periods.
Also, industry-specific lending (for example to construction, retail, or health) is rising, because financial needs and cash flow cycles vary by sector.
- Benefits SMBs now enjoy
Faster access, lower friction
Fintech platforms reduce approval times from weeks to hours or days. This speed can be a lifeline in times of cash crunch.
Greater inclusivity
Marginal or smaller firms that were excluded before are now getting credit access based on real performance, not just collateral or legacy credit reports.
Better alignment of risk & reward
Because fintechs can monitor and adjust dynamically (e.g. changing rates, repayment terms), they can better tailor loans to business cycles.
Integration with operations
With embedded credit tools, SMBs don’t need multiple disjointed tools or separate loan applications—everything flows through their existing software stacks.
- Challenges & risk controls in adoption
Regulatory and compliance complexity
Fintech lenders must navigate evolving regulations on data privacy, fair lending, and disclosures. Striking the balance between automation and oversight is crucial.
Algorithmic fairness
When ML models power decisioning, risks such as bias or opacity arise. A recent study examined how fairness constraints impact profitability and compliance in automated lending systems.
Data quality and integration
Many SMBs have fragmented or nonstandard financial records. Integrating data across systems or normalizing it for decision models can be tough.
Trust and adoption
Some SMBs may be cautious about digital lenders. Building trust via transparent processes, clear terms, and support will be essential.
- What the future looks like (and what SMBs should do)
More partnerships and hybrid models
We’ll see more collaboration between banks, fintechs, and platforms—blending capital with technology to scale offerings.
Real-time, continuous credit
Credit models may evolve from discrete loan events to continuous lines, dynamically adjusting based on business behavior.
Personalized financial agents
Startups are building AI agents that act like virtual CFOs—monitoring cash flow, forecasting needs, and recommending credit actions. For instance, a fintech recently raised funding to build “AI CFO” agents for SMBs.
Emphasis on ESG and sustainable lending
Green or sustainability-linked loans may become more common, especially as investors demand responsible portfolios.