Rethinking Small Business Lending: How Trust and Speed are Reshaping the Future

Highlights:

• Despite tight credit standards, small businesses are showing resilience but require a lending partner who prioritizes trust and speed to navigate the complexities of commercial entity structures and non-standardized commercial data.

• Next-generation tools, including EIN validation and commercial scores leveraging traditional and alternative data, are helping lenders overcome coverage gaps and accurately assess up to 50% more applications, while AI and automation accelerate manual due diligence tasks.

• Lenders are fostering stronger relationships by offering personalized guidance that looks beyond the immediate loan request, providing SMBs with real-time transparency into the process, and using data to deliver "right-moment" financial support throughout the loan lifecycle.

As small businesses (SMBs) juggle payroll, suppliers, and customers in today’s tough economic environment, they need more than funding—they need a lender who understands their urgency and earns their trust. 

Today: SMBs Are Holding Strong as Lending Tightens 

With SMB lending up 7.5% in Q2 2025 over the prior quarter, small businesses are proving resilient amid persistent economic volatility, a stressed job market, and low consumer confidence. 

Interest rates have eased slightly, yet credit standards remain tight, and credit quality has declined. Though demand for SMB loans is up, it’s expected to fall in coming months due to evolving trade policies, labor costs, and other factors. 

Consumer spending remains a key driver of SMB performance. Recent economic data shows continued strong consumer spending, which is good for SMBs. Yet, 50% of all spending is being driven by the top 10% of earners, which is tempering broader optimism. 

Traditional banks are cautious, but alternative finance and embedded finance are filling lending gaps. Embedded finance, in particular, is gaining momentum as it relies on reciprocal trust built between software providers and their SMB customers. Businesses can access funding directly through the software they use every day, while software providers can confidently extend loans based on the many data points and signals collected from their SMB customers. 

Why SMBs Require a Different Playbook 

The first challenge is that unlike a one-to-one consumer loan, a commercial loan is between the lender and a commercial entity, which often requires lenders to identify and understand multiple relationships rather than just one.  

For instance, a franchisee in Chicago may have five locations rolled into a single corporate entity with one owner, or they may be structured as five separate legal entities with a single owner. 

Similarly, some small businesses are partnerships with multiple owners. In these cases, understanding who you're working with is much more difficult. The question becomes: who is my borrower here?

This leads to the next challenge: accessing the right mix of data to fully understand the business, its owner(s), and perform crucial Know Your Customer and Know Your Business due diligence. Unfortunately, commercial data is significantly less standardized than consumer data. With no commercial equivalent to the Metro 2® format used for consumer credit data, lenders must often take the extra step of normalizing and standardizing differentiated data streams into a usable format to ensure consistent, trustworthy outcomes. 

Coverage gaps also pose challenges. Even with 70% coverage for a data point, which sounds pretty good, that means 30% of applicants aren’t covered. And figuring out which 30% isn’t covered can be difficult, often requiring manual reviews. 

Last, validating information on new businesses and microbusinesses can be especially tedious, if not impossible. Many don’t have a business credit profile and often rely on initial funding through the owner(s) personal account and/or credit card.  

However, new solutions are helping lenders speed up and strengthen these processes. For example: 

• Lenders can now quickly and easily validate a company’s Employer Identification Number (EIN)—essentially the business equivalent of a consumer SSN verification—directly from the Internal Revenue Service, the issuing source. 

• Next-gen commercial scores are helping lenders identify hard-to-find smaller businesses and confidently score up to 50% more commercial lending applications using a mix of traditional and alternative data from financial and non-financial institutions. 

But It’s Not Just About the Loan—Support Matters  

Most small business owners aren’t finance experts. They know they need a loan, but they often don’t fully understand their options or the broader financial implications. 

Lenders recognize this and are offering personalized guidance at origination to help SMBs better understand their long-term needs, not just the immediate request.  

For example, if a builder needs $40,000 for materials, lenders may ask deeper questions. They want to understand average demand over time, seasonal patterns, how long capital is needed, and whether a revolving product or closed-end loan is a better fit. 

Probing beyond the initial loan request, to better understand the bigger picture, is helping lenders match SMBs with best-fit financial products and payment options. 

Consequently, lenders are enabling this type of more personalized engagement by using advanced AI, automation and data to speed manual tasks like performing validations, due diligence checks, cash flow analysis, loan sizing, pricing, and more. This frees loan officers to spend more time with business owners and build trust from the start. 

Lenders are also showing up for SMBs throughout the loan lifecycle, helping them take the next best step toward protecting and growing their company by: 

• Providing access to consultants, partners, and services that SMBs may not know about  

• Continuously educating SMBs on financial health and wellness

• Giving SMBs access to their business credit reports

• Using AI with customer data to deliver “right-moment” financial solutions throughout the account lifecycle  

Improving Trust and Speed Through Transparency + Technology

Trust begins with the data—trusting that the data is being ingested correctly, classified correctly, managed and stored correctly, and delivered to businesses correctly. 

Knowing this, lenders are investing heavily in data quality initiatives. If they can’t deliver good data, businesses can't trust the process or the decision.  

They’re using AI-driven technology and tools to monitor their data, attributes, and models and quickly identify anomalies and outliers to ensure their data and decisioning insights are sound.

They’re also improving visibility into and across the lending process. While SMBs typically understand approvals and denials, they often lack insight into the steps and reasoning leading up to these decisions. To solve this, lenders are leveraging existing data points collected throughout origination—information that was previously unused—to: 

• Deliver consistent updates and decisions to all parties involved—including SMBs, partners, and affiliates— throughout the lending process

• Show SMBs exactly where their deal stands in real-time and what steps come next

• Educate SMBs about the financing process as it unfolds, reinforcing the notion that trust is a two-way street  

Improved lending speed naturally follows improvements in data integrity and process visibility. Over the past decade, lenders and partners across the value chain—from acquisition and origination through loan servicing and capital markets—have implemented innovative strategies and technologies to reduce friction and make SMB lending faster and more reliable.

Today, technology can deliver rapid insights that are impossible to manually review at scale, which is helping lenders fund businesses faster, anticipate financial issues sooner, and build agile go-forward strategies that align with changing consumer behaviors and market conditions.  

Moving forward, as economic pressures continue to mount, SMBs need trusted lending solutions that help them feel supported every step of the way. By pairing smarter data and technology with meaningful human connection, lenders can become the steady partner businesses turn to—not just in moments of need, but also in moments of opportunity.