Brave new world: How technology is changing lendingFrom AI to blockchain, huge strides in technology have left traditional lenders scrambling to keep up with their more agile counterparts. Technology has changed lending for good.https://assets.website-files.com/5eeb8a768672f32cf7efbdb5/5f2197ca64544bb99acc43b7_Tech%20image.jpg
The average SME operates with a cash runway of less than a month. So, when net revenue dropped to zero for many businesses early this year, there was a pressing need for fast solutions.
Despite the government-backed Coronavirus Business Interruption Loan Scheme (CBILS), traditional banks remained slow to process applications and reluctant to release funds.
The Bounce Back Loan Scheme (BBLS) proved more successful than its clunky predecessor, but it too was criticised for initially only approving issuance to eight major banking groups.
It wasn’t until alternative lenders were given the green light that the most vulnerable businesses were able to access the cash they needed.
A major reason why alternative lenders were able to react quickly to this crisis was down to the technology they use to onboard customers and facilitate lending.
Whilst the major banks were hampered by cumbersome administrative systems, cloud-based lenders were able to release funds in just a few clicks.
In essence, the crisis has highlighted just how important technology has become in the lending landscape and shown up the system failures that prevent some financial institutions from serving the needs of smaller businesses.
Of course, the rise of alternative lending was facilitated by another crisis - the 2008 financial crash. Then, as now, online lenders rushed to fill a gap in the market caused by belt-tightening banks, providing a much-needed credit stream to an economy struggling under the pressure of recession.
However, over the past 12 years alternative lenders have become so much more than a place to turn when the banks say no. From AI to blockchain, huge strides in technology have left traditional lenders scrambling to keep up with their more agile counterparts.
For many young entrepreneurs, this flexibility and speed has given alternative lenders the edge, making them the first port of call when it comes to business finance.
A 2019 survey from ThinCats suggested that younger businesses were significantly more likely to opt for alternative finance than older ones. The survey pointed to several explanations for this trend, including that younger business owners are more comfortable sharing financial data with potential lenders through their cloud accounting software.
This naturally opened them up to a more diverse suite of funding solutions, with many choosing alternative lenders as the best option.
Tech has also made the financial landscape more accessible for smaller business owners. Satago is an example of a platform that makes it easier for businesses to access invoice finance by connecting to their accounting software.
The hard work of selecting eligible invoices and performing risk insight can all be managed within the platform and clients can usually drawdown funds in a matter of hours—a much simpler process than in the clunky systems of the past.
For brokers and accountants, the sudden diversification of lending streams is a double-edged sword. On the one hand, having more options on the table is a huge positive. On the other, with everyone from Amazon to Paypal wanting a slice of the lending pie, there’s a risk that business owners will end up opting for the wrong financial product at the wrong time.
For this reason, the need for advisory services has never been more pressing. As government lending schemes wind down and we look towards the future, financial advisors must continue having regular conversations with their clients.
Cloud technology can facilitate these conversations, allowing advisors to easily assess their clients’ needs and provide them with clear solutions.
By combining data-driven technology with human expertise, brokers and accountants can offer their clients a diverse range of financial options, tailored to their needs.
As the economy opens up post-lockdown, these options may prove vital to the survival of small businesses.
For more information on Satago’s invoice finance facility, get in touch with our team today.