How AI is changing unsecured business lending

For Australian SMEs used to the lumbering service standards of big banks, where loan approvals are still measured in weeks and months, the innovation brought by Artificial Intelligence in business lending all represents a radical leap forward.

Artificial Intelligence (AI) is as high-tech as it may sound, has actually been around for more than 60 years. Alan Turing first mentioned it in his paper Computing Machinery and Intelligence where he suggested considering the question, “Can machines think?” Artificial Intelligence is the development of computer systems to make them perform tasks that usually require human intelligence. This involves tasks like speech recognition, visual perception and decision making.

So how is this affecting the burgeoning market for business lending?

Today’s financial sector represents the combined efforts and experience of millions of individuals over 100 years or more of “system evolution.” The point is it took a long time to get to where we are now.

As predicted in Rise of the Robots, the future trajectory of a financial system powered by AI and quantum computing will be a much faster, steeper cycle of innovation than anything previously experienced. This is likely to hold true also for the growing niche market of unsecured business lending. The knowledge and skill set currently utilized for everything from credit assessment, decision making, product development and fulfilment will be digitized to varying degrees over the coming years.

There’s no question AI will change the way SMEs obtain finance. What many entrepreneurs may not realise is that it’s already having a demonstrable effect right now in three ways.

1. More personalised lending solutions

The fuel for effective AI, is data. As more and more data on businesses and entrepreneurs is deployed towards online lending platforms, it’s producing more personalised business loan offers. We can already see in the market that some unsecured business lenders are partnering with online accounting software platforms, and that the data collected is being used to target business owners who may need finance.

Banks, lenders and online brokers such as use algorithms to assess basic eligibility for credit and to match business owners with the right type of finance, from the right non-bank lender.

2. Faster transactions

For aggregators of unsecured business finance such as, AI offers some tantalizing possibilities. Our technology can already match business owners seeking a loan with a wide range of eligible lenders. In future, we anticipate that AI will dramatically increase both the speed and depth of our loan matching capabilities. This will improve our efficiencies, and most importantly will deliver an even better experience for users.

More broadly across the non-bank business lenders we partner with, these improvements combined with forward credit reporting may soon provide full loan approval within minutes or seconds. Even better, the partly automated funding mechanisms of some lenders are delivering faster settlement and disbursement of funds to business applicants. For Australian SMEs used to the lumbering service standards of big banks, where loan approvals are still measured in weeks and months, this all represents a radical leap forward.

3. Channel disruption

Individual mortgage brokers and commercial finance broking businesses are currently a significant distribution channel for many small business lenders. However, next generation groups such and others are already using AI to connect entrepreneurs more directly online with the providers of unsecured finance.

The superior speed, choice and convenience of this approach is growing in popularity with Australian business owners. This “disintermediation” of the traditional distribution model for small business finance probably spells bad news for the viability of many old-school brokers.

It’s clear that AI is already having a substantial impact on unsecured loans for small businesses. It seems clear that Artificial Intelligence is set to further transform it beyond the rapid innovation evident from both lenders and aggregators over recent years. Although these changes are likely to challenge existing business models and distribution channels, the improvements in product choice and fulfilment they will deliver will benefit Australian small-business owners.

Simon Isaac, Founder, eBroker

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