How Technology is Changing Business Finance

As the business landscape evolves, so do the ways in which businesses access business finance.  Gone are the days when traditional banks were the only source of loans for small and medium businesses.

In recent years, there has been a surge in alternative lending options and technological advancements that are changing the game.

From peer-to-peer lending and the rise of alternative lenders, there has been an increase in funding sources and opportunities for companies of all sizes.

Whether you're a business owner looking to secure financing or a professional in the financial industry, understanding these trends and technologies is crucial to staying ahead of the curve in the fast-paced world of business lending.

How Technology is Changing Business Finance

The Current State of Business Loans

The traditional way of obtaining a loan from a bank has been the go-to option for most businesses.  However, banks have become more stringent in their lending practices, making it harder for small businesses to access funding. This has led to a rise in alternative lending options.

Alternative lending options have become increasingly popular in recent years, providing businesses with more accessible funding options.

These alternative lenders include online lenders, peer-to-peer lending platforms and crowdfunding.  These platforms can provide easier access to small business loans or specialist business loans, which cannot always be available through traditional banks.

Emerging Trends in Business Loans

As technology advances, so does the way businesses can access business funding.  The future of business loans is set to be shaped by emerging trends such as alternative lending options, technology-driven lending solutions, and regulatory changes.

Alternative lending options are changing the way businesses access funding, offering more accessible and flexible options than traditional banks. Peer-to-peer (P2P) lending platforms have become increasingly popular, with many businesses opting to borrow from P2P and alternative lenders rather than banks.

Technology-driven lending solutions are also shaping the future of business loans.  Artificial intelligence and machine learning are being used to analyse credit risk and make more informed lending decisions.  This technology allows lenders to process loan applications more quickly and efficiently, making the lending process more accessible for businesses.

Artificial Intelligence and Machine Learning in Lending

Artificial Intelligence (AI) and Machine Learning (ML) are revolutionising the lending industry by providing personalised customer service and support.  By analysing customer data, AI models can understand their preferences and needs which allows lenders to make more informed decisions with reduce leg work.  

AI can assist with onboarding, verifying identities, setting up accounts, and providing guidance on available products.  With proactive fraud detection and short support wait times, AI is transforming the lending industry and improving the overall customer experience.

With AI, lenders can streamline processes such as account balance inquiries and password resets, freeing up customer service representatives to focus on more complex tasks.  This not only increases efficiency and reduces costs but also provides 24/7 support for customers, making it easier for them to get help and carry out tasks outside of regular business hours.

Artificial intelligence can analyse a vast amount of data from various sources and use lenders predefined criteria to determine whether a borrower is creditworthy.

By analysing vast amounts of data, AI algorithms can quickly and accurately assess creditworthiness, reducing the risk of default and improving loan approval rates.

This type of technology is commonly used for soft check credit searches with lenders who will give you a “likelihood of approval” before you carry out a full application as used with comparison websites.

As AI technology continues to advance, the future of business loans is likely to see a shift towards more personalised and efficient customer experiences.

However, implementing AI can present challenges, particularly regarding security and privacy of customer data.  Lenders must prioritise safeguarding sensitive information and ensuring their systems are secure.

In addition, training AI models to understand banking-specific language and terminology is crucial for accurate and appropriate responses to user queries.

The success of the use of AI in the finance market depends on the level of customer adoption and lenders must invest in education efforts and user-friendly design to encourage comfortable use and trust of AI based products.

Despite these challenges, the potential benefits of AI in the lending market make it a promising avenue for the future of business loans.

Crowdfunding and Peer-to-Peer Lending

Crowdfunding and peer-to-peer lending platforms have disrupted the traditional banking industry by providing businesses with more accessible and flexible funding options.

These innovative platforms allow businesses to raise funds from either individual investors or alternative lenders who use funds from a pool of investors.

One of the biggest advantages of crowdfunding and peer-to-peer lending is that they can offer access to funding for individuals who may not qualify for traditional financing options.

This is particularly true for those with less established credit histories or those who are working on projects that may not fit the criteria of traditional lenders.

With easier access and potentially more preferable terms than traditional banks, more and more businesses are turning to these alternative lending options to finance their growth and expansion.

Additionally, these methods can offer a way to test the market and gauge interest in a project before investing significant time and resources.

Regulatory Challenges and Opportunities

FCA regulations within the traditional and alternative lending markets are constantly evolving to accommodate for the rise in online applications and technology-based lending. These regulations provide protection for both borrowers and lenders alike.

Up to date regulations and guidelines in line with new trends and technology ensures the market is operated legally, fairly and uses systems that are secure and fit for purpose.

It is for this reason that you must ensure that you use FCA registered providers so you know you are dealing with a provider that is fully regulated and operates within the FCA guidelines.

Conclusion: The Future of Business Loans

The future of business loans is set to be shaped by emerging trends and technologies, including alternative lending options and technology-driven lending solutions.

These trends and technologies are providing businesses with more accessible and flexible funding options, reducing the reliance on traditional banks.

As the business landscape continues to evolve, businesses must stay ahead of the curve and understand the opportunities and challenges that lie ahead in the fast-paced world of business lending.

Whilst RLA Capital cannot offer financial advice, we can provide various business loans to assist with cash flow.  RLA Capital would recommend speaking with your accountant if you are experiencing cash flow problems.

Updated: Jun 12, 2023