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About the Author:
Terry Kiwala
Vice President
Terry Kiwala is a vice president specializing in research and investment in software-as-a-service (SaaS) businesses, particularly in enterprise productivity applications. He is a thought leader in his sector, having authored widely read industry research. He uses his industry knowledge and expansive network to uncover promising investment opportunities and help companies navigate their strategic paths and accelerate growth. Prior to joining First Analysis in 2019, he was chief financial officer of Vokal, a software development company, senior vice president at Tribeca Flashpoint Media Arts Academy, and associate vice president at National-Louis University. Earlier, he was an investment banking analyst at Lehman Brothers. He earned a bachelor’s degree in economics and government from the University of Notre Dame. He is a CFA charterholder.
First Analysis Enterprise Productivity Technology Team
Terry Kiwala
Vice President
Corey Greendale
Managing Director
Richard Conklin
Managing Director
Matthew Nicklin
Managing Director
First Analysis White Paper
Lending as a Service
SME funding gap driving demand for technology to turbocharge lending
August 26, 2020
  • There is a significant worldwide funding gap for small and medium enterprise (SME) working capital needs owing to a mismatch between the size of loans needed by SMEs and the cost associated with traditional banks’ lending practice that prevents banks from recouping the cost of extending credit with associated interest income and fees.
  • We think both public policy and private sector innovation will increasingly look to Lending-as-a-Service (LaaS) companies — companies that use technology combined with existing and new data sources to reduce the cost and risk of lending to SMEs and thereby expand the supply of funding – as a key to filling the SME funding gap.
  • We estimate the U.S. LaaS total addressable market (TAM) at $1.2-2.0 billion with only 3-4% penetration. We expect the TAM to grow at an 18% annual rate driven by growth in factoring loans and venture capital funding, normalized GDP growth of about 2% annually, an expectation of higher demand for SME credit following the exhaustion of Paycheck Protection Program (PPP) loan funds, and further progress toward open banking in the United States.
  • We expect penetration of the TAM to increase by 35% annually, reflecting the 18% TAM growth plus increasing adoption of LaaS technology by capital providers seeking to address the growing SME funding opportunity more efficiently. This mirrors trends in the EU following the adoption of open banking.
  • We discuss 27 providers aiming to transform SME lending with innovative technologies and data.


Includes discussion of BILL, EPAY, LC, ONDK and 23 private companies

SME funding gap large, a hindrance to economic growth and catalyst for the LaaS sector

The numbers show limited options for SME borrowers

Technology for gathering, analyzing data can narrow the gap

Europe and the U.K. promote more efficient SME funding with open banking

Two years in: Early evaluation of open banking progress

Post-open banking: From lender to lender-as-a-service

The environment for open banking in the United States

SME lending innovation in the United States

Established SME business service providers may make LaaS inroads

U.S. LaaS total addressable market $1.2 billion to $2.0 billion

Company profiles

SME funding gap large, a hindrance to economic growth and catalyst for the LaaS sector

On April 21, as Treasury Secretary Steven Mnuchin announced an incremental $310 billion in emergency PPP forgivable loans for small businesses hit by the COVID-19 pandemic, he proclaimed it was critical to extend a total of $600 billion in funding to small businesses, which are the “backbone of the economy” and “50 percent of the private payroll.”

The reality is that even prior to the COVID-19 liquidity crunch that small businesses currently face, there was a significant worldwide funding gap for SME working capital owing to a mismatch between the size of loans needed by SMEs (and lenders’ potential profit from those loans) and the cost associated with traditional banks’ lending practices that prevents banks from recouping the cost of extending credit with associated interest income and fees.

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