The COVID-19 pandemic has further highlighted the crucial role of the lending industry.
With so many businesses and individuals needing a lifeline, lenders had to step up by making their services more accessible and by creating new business models. And despite the economic slowdown due to the pandemic, the global lending market’s compound annual growth rate experienced a slight decline, with it going down by only 1.8 percent. This is due to the increase in demand for need-based loans, which are necessitated by organizations and individuals who are in severe economic distress.
Lenders today recognize their role in society and understand that they need to revolutionize from the ground up to better respond to modern demands. In this post, we’ll discuss three emerging trends in the lending industry that are bound to transform business loan processes.
Artificial intelligence and machine learning
In a previous post about growing technologies in the investment market, we pointed out that artificial intelligence (AI) is pivotal in ensuring that current technologies can keep up with the increasing demand for comprehensive financial services. Indeed, innovations such as AI and machine learning (ML) have greatly boosted the speed of financial processes. This is due to the fact that AL and ML driven processes are more sensitive to changes in data, which can help reduce the need for manual intervention and enhance productivity. To illustrate, implementing intelligent AI technology can help lenders speed up loan processing from weeks to hours. With AI-driven automation, lenders can delegate less time to the mundane parts of the business loan process such as documentation work, and instead focus their time on more important tasks.
AI and ML can also be implemented to optimize the onboarding process and reduce cost. Manual processes are losing their shine since they can hardly keep up with the complex processes that are needed for cross-functional teams to work. By using AI and ML, lenders can amplify the efficiency of the entire lending process and achieve lower operational costs, as well as higher ROI.
Increased collaboration with fintech companies and professionals
Fintech companies continue to rise and continue to occupy space in various finance sectors such as insurance, banking and payments, as well as financial management. According to a survey, the global fintech adoption rate has reached 64% percent, which is proof that this technology has crossed into the mainstream. In addition, an increasing number of professionals with a wide range of tech skills are now emerging. Take for example those who have chosen to upskill with a master’s degree in accounting. Aside from having an established sense of core accounting sensibilities, today’s accounting professionals are also well versed in relevant concepts such as data analytics and financial law. Making them a highly valuable asset in today’s competitive lending market.
In order to further push for innovation, lending companies have to partner up and collaborate with fintech companies as well as professionals that focus on third party processing and data collection. Doing so allows lenders to maximize their digital transformation.
A new way to determine creditworthiness
It is high time for lenders to change the way they assess credit scores, especially for small businesses. Small businesses often don’t get access to credit due to the overhead attributed to conventional credit scoring systems. Issues such as high-interest rates, long decision-making times, and unnecessary documentation dissuade borrowers from seeking credit validation. For this reason, lenders should change how they look at a small business’ credit report and seek a fairer picture of an enterprise’s credit behavior. This means using data driven models that take into account business data such as financial statements, cash flows, and POS transactions, as well as behavioral data that highlight a business’ spending pattern and loan utilization.
In this way, lenders can effectively minimize the cost and time of servicing a loan, as well as make credit available to businesses that need it the most.
Written for Boss Insights by Margaux Lewis