Even in today’s ever-changing economic climate, demand for small and medium-sized enterprise (SME) funding continues to hold strong.
In fact, according to the Federal Reserve, the number of SMEs applying for financing has held steady since 2023.
Still, many SMEs continue to face significant funding barriers—with slow approvals, stringent criteria, and outdated processes standing in their way of acquiring the capital they need.
That gap between demand and access presents a major opportunity for SME funders who are ready to lead.
So, how can funders rise above the competition and capture more of this the merchant market?
The most successful SME funding players follow a set of proven best practices. Below, we break down what sets them apart, and how you can do the same.
The State of SME Funding in 2025
The latest annual Small Business Credit Survey, which focuses on firms with fewer than 500 employees, sheds light on the evolving challenges that SMEs face in seeking financing in the United States.
Here’s what the data reveals about the current state of SME funding:
- Revenues are down: For the first time since 2021, more SMEs reported revenue drops over the previous 12 months versus those reporting increases.
- SME debt above pre-pandemic levels: Firms with over $100,000 of debt held steady at 39%. Many cited high debt as a reason they were denied financing.
- No real change in application and approval rates: The proportion of SMEs applying for loans, lines of credit, or merchant cash advances (MCAs) stayed virtually the same year-over-year. The same can be said regarding approval rates.
- SMEs are beginning to shift away from larger banks: Fewer SMEs sought funding from large banks in 2024 compared to 2023 (39% vs. 44%).
- Satisfaction in funders is slipping: In 2024, SME perceptions of funders grew more negative. Interestingly, the steepest drop was among applicants who used online funders, with net satisfaction in this group falling from 15% to a mere 2%.
These findings paint a complex picture of SME funding in its present form.
While application and approval rates remained virtually the same over the last two years, lower revenues, increasing debt burdens, and the decrease in satisfaction highlights an urgent need for SME funders to evolve.
Below, we share five best practices that the most successful SME funders are using to adapt and lead in today’s ever-changing landscape.
Best Practice #1: Establish a Clearly Defined Funding Policy
What are your requirements to ensure only the most valuable funding relationships?
A well-written funding policy can be a solid base for consistent and transparent financing practices, especially when your entire team is well-versed in it.
As you develop or refine your policy, ensure you:
- Articulate your risk appetite: Define what is considered “acceptable risk” for your firm, aligning it with your business’s overarching strategic goals.
- Include comprehensive underwriting guidelines: Integrate detailed underwriting criteria for collateral requirements, cash flow analysis, and creditworthiness standards.
- Implement structured approval processes: To improve compliance and expedite assessments, include step-by-step workflows within your policy, outlining exactly who is accountable for each stage of approval.
Additionally, build some flexibility into your policy so you can easily adapt it to ongoing changes (e.g., shifting market conditions, new leadership, etc.).
Best Practice #2: Streamline Merchant Data Collection—and Learn From It
For SME funders, fragmented workflows and manual data entry can create serious bottlenecks—delaying assessments and approvals, increasing errors, and putting the quality of your decision-making at great risk.
Here is how top-performing funders approach modern data collection, helping streamline every step of the financing journey:
- Automate and centralize intake workflows: Digital funding platforms automatically capture and centralize data from bank accounts, financial statements, and alternative sources. Thanks to OCR technology, Onyx IQ can do this effortlessly.
- Enable intelligent data visibility for underwriters: Incomplete or inaccurate data can lead to delays and poor decision-making. As such, equip your team with automated funding tools, like Onyx IQ, that highlight missing information, flag inconsistencies, and offer real-time insights.
- Use data to fuel ongoing improvements: Don’t just collect data—learn from it! An integrated system simplifies the task of analyzing portfolio performance and detecting emerging trends. Meanwhile, consistently apply your learnings to fine-tuning strategies across credit modeling, customer experience, and risk management.
By transforming how data is collected, accessed, and applied, SME funders can respond faster to market shifts, tap into new territories, and enhance every interaction.
Best Practice #3: Adopt Advanced Risk Assessment Models
When SME financial data is sparse, how should you approach risk analysis?
While large funders generally look to FICO scores to assess risk, successful SME funders often look beyond the usual data.
- Consider alternative data sources: Assess creditworthiness by combining traditional credit scoring with non-traditional data like utility payments, rental history, and even social media activity. This alternative funding approach creates a more extensive, 360-degree view of an applicant’s repayment potential, especially if they have limited credit history.
- Create industry-specific risk models: Tailor your risk assessment models to the sector-specific challenges, and unique dynamics and nuances, of different industries. Using automated funding tools, you can then more accurately evaluate potential risks and opportunities within each market segment.
- Implement real-time data analytics: With a funding platform you can leverage dynamic data insights to stay alert about SME merchants’ ongoing financial health. Then, make timely adjustments to financing terms and repayment schedules accordingly.
Ultimately, these risk assessment strategies can empower SME funders to make much more informed, personalized, and inclusive decisions, especially when dealing with owners with a limited financial track record.
Best Practice #4: Embrace a Cloud-Based Approach
Top SME funding players don’t rely on legacy technology, because they know these solutions cannot deliver the data analytics, speed, and agility required to succeed in today’s fast-paced financing landscape.
Rather, they use modern cloud-based funding solutions to reap the benefits listed above, without the need to invest in expensive software.
- Prioritize scalability and flexibility: Select a cloud-based funding platform that offers auto-scaling capabilities. This will enable your operations to easily adapt to fluctuating client volumes, as well as any new federal or state-level disclosure laws that emerge.
- Ensure robust security and compliance: Cybersecurity continues to be an ongoing threat to sensitive corporate and customer data. Via the cloud, digital funding technology can automatically manage security updates, encryption, firewalls and data backups.
- Evaluate integration and automation capabilities: Not all platforms facilitate an end-to-end funding process on their own, so look for one that seamlessly integrates with existing financial tools—such as Onyx IQ’s suite of integrations. Meanwhile, prioritize solutions that offer automated funding features for underwriting, payments, and reporting.
By adopting a cloud-based approach to financing, SME funders can position themselves to do business with greater speed, accuracy, and resilience.
Best Practice #5: Focus on Customer Experience and Education
Customer experience (CX) is how customers perceive every single interaction with your business—from browsing your website to using your products and beyond.
Improving customer experience can significantly impact your funding operation’s performance. To ensure you provide the best experience possible:
- Provide open and transparent communication: Always clearly explain terms, fees, disclosures, and repayment schedules to merchants before they sign the dotted line. Meanwhile, regularly solicit input to identify areas for improvement, and be sure to address those customer concerns promptly.
- Create personalized experiences: Use advanced real-time analytics to understand behaviors, preferences, funding history, and shifting SME financial needs. Then, tailor your offerings, terms, schedules, and support accordingly.
- Offer educational resources: Provide materials and workshops to help customers understand key financial concepts, make informed decisions, and improve their credit standing.
Ultimately, taking a customer-centric approach can help merchants feel understood and empowered. By demonstrating a genuine commitment to their success, your funding operation can transform mere transactions into lasting partnerships with SME owners.
From Playbook to Performance: How Onyx IQ Delivers on Best Practices
In today’s ever-evolving SME funding landscape, staying ahead of the competition demands more than capital. It also requires using the right tools.
And that’s where Onyx IQ shines—empowering merchant cash advance (MCA) funders to transform best practices into real, repeatable outcomes via our all-in-one, automated, end-to-end platform.
From streamlining applications to automating underwriting, improving the MCA customer experience, ensuring compliance, and more, Onyx IQ helps you fund more merchants, more efficiently, and more securely than ever before. Ready to lead with speed, confidence, and clarity? Book a demo today to discover how Onyx IQ can help you modernize your SME funding approach, unlock new growth opportunities, and turn best practices into amazing results.
