How AI Is Adding Faster Funding And Efficiency To Small-Business Lending
Richard Gusmano is the Founder and CEO of Business Credit Consultants, a digital financial consulting practice for small business owners.
In the not-so-distant past, applying for a small-business loan was a cumbersome process involving multiple trips to the bank, heaps of financial records and face-to-face meetings with loan officers. The credit acquisition landscape was intentionally opaque, with banks holding all the power. However, the advent of the online business environment has ushered in a new era, reducing the need for physical visits to banks. Yet challenges persist in the form of time-consuming processes, extensive documentation requirements and hidden barriers to loan approvals.
The emergence of artificial intelligence (AI) and machine learning (ML) is revolutionizing the small-business lending landscape, offering solutions to the long-standing hurdles. AI’s advances empower small-business owners, providing them with insights to make informed choices, submit stronger credit applications and secure loan approvals more expeditiously. The transformative impact of AI extends beyond mere automation; it empowers businesses to take control of their financial health by bringing transparency to lending decisions.
With a decade of experience guiding entrepreneurs through the small-business lending process, the recognition of AI’s value in streamlining application preparation is evident to me. At my company, where approximately 7,000 files from small-business owners are processed annually, an AI-driven digital loan qualifying system plays a pivotal role. This system efficiently collects crucial data points, offering visibility pre-application and enabling owners to make informed adjustments.
Borrowers Gain Faster Funding And Data With Value
AI’s ability to streamline complex processes that have historically caused delays can reduce loan funding from weeks to days, eliminating the threat of cash flow problems.
AI can now serve as a loan-qualifying system to analyze credit reports and a business owner’s creditworthiness as viewed by lenders. This AI analysis and industry expertise can translate intricate financial information into actionable insights for owners before they apply for a loan. Accurate AI data that analyzes a business’s financials gives small-business owners their lending eligibility within minutes and potential avenues for finance.
These insights allow borrowers to understand potential stumbling blocks and rectify issues before applying for credit, significantly reducing the waiting time associated with credit decisions. While AI data provides the road map to securing a line of credit, small-business owners can also turn to trusted consultants for recommendations on the right steps to ensure adjustments are completed before applying. Real-time insight into the data that banks utilize when making expedited or streamlined business lending decisions is time and money for business owners.
When business owners use AI data to make lending decisions at the start of their loan application, they may be able to better avoid denials, which can delay a business from obtaining funding for months.
Personalized Customer Experiences For Borrowers
AI’s ability to process vast amounts of data allows lenders to offer custom services to business owners. Knowing what lenders will need to qualify, AI has the capability to secure the essential information to generate the necessary data points, such as personal credit, business-to-business credit, NAICS code or entity type, available credit, time in business, inquiries, Uniform Commercial Code (UCC) filings and tax liens, if needed. AI algorithms can generate tailored financial recommendations by analyzing transaction histories, market trends and individual financial behaviors.
This customizable approach goes beyond conventional lending practices, allowing businesses to access funding options that align precisely with their unique needs. For instance, an AI-powered lending platform might recommend a specific loan with terms and conditions tailored to a particular small business’s financial health, goals and business type.
Improved Consistency And Speed In Underwriting For Lenders
AI is helping creditors leverage their lending talent, aggregating and automating the knowledge and expertise of seasoned underwriters.
This helps minimize the risk of encountering underwriters unfamiliar with a business owner’s financial intricacies. It also reduces the chance of errors when accompanied by regular audits by seasoned professionals who know what is required for borrowers in various spaces.
AI is there to augment, collect and automate the various data points and filing that can be done digitally with speed. A human touch is required to interpret all variables and provide next steps to achieve the desired outcome of a line of credit. Experienced underwriting professionals can shift their focus to oversight and regulation audits to ensure each borrower benefits from a comprehensive evaluation.
Document Preparation And Collection For Lenders
Through ML algorithms, AI optimizes processes and workflows, making them more responsive to the changing demands of businesses. AI systems, such as the one that powers my own company, are customized to gather and house the documentation needed for various applications.
This speeds up document collection and gives lenders valuable AI credit insight into applications. Adaptability helps ensure lending institutions can keep pace with emerging trends without expensive upgrades to their current technology.
Continuous Improvement And Innovation For All
As AI algorithms become more refined, lenders can leverage them to adapt to market trends and economic shifts, providing accurate credit standings for borrowers. AI fosters innovation in the design, security and delivery of financial services, leading small-business owners to smarter lending solutions.
owever, it’s crucial to note that the use of AI in lending requires ongoing refinement and guidelines. The Consumer Financial Protection Bureau issued guidance in September 2023 on credit denials from lenders using AI, emphasizing the need for human oversight and governance.
Entrepreneurs should not rely solely on AI when making credit decisions.
While AI is transforming bank lending, risks remain, and mistakes must be addressed. The industry is on the brink of a transformative journey where forward-thinking banks and lenders embrace AI-powered solutions, attracting qualified, organized and ready-to-apply small businesses. The ongoing evolution of AI, with the right support and values, promises to reshape banking and small-business lending, unlocking new possibilities beyond legacy systems.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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Richard Gusmano is the Founder and CEO of Business Credit Consultants, a digital financial consulting practice for small business owners. Read Richard Gusmano’s full executive profile here.
