The digitization and automation of small business lending has led to some undeniable benefits for entrepreneurs today.
Small- to medium-sized businesses (SMBs) can gain from faster application times and the convenience of no longer having to visit a physical bank branch with loads of paperwork to obtain a loan.
On the lender side, automated data analytics technologies have accelerated the underwriting process and helped to strengthen risk mitigation.
But there are major downsides to the digital revolution of SMB capital, too, and while not all of them are obvious, they have widespread implications on a business owner’s ability to obtain the financing necessary to survive and thrive.
Elizabeth Gore, president of Hello Alice, a platform connecting SMB owners to resources to launch and grow, spoke with PYMNTS about the complicated, sometimes even contradictory relationship between technology and humans in today’s SMB lending ecosystem. While there are pros and cons to the digital revolution, it’s important to acknowledge the drawbacks of an automated world — and to wield technology in the areas what will empower SMBs the most.
Filling Tech’s Advisory Gap
For all of the benefits of faster, automated loan decisioning, technology isn’t always able to entirely provide the financing experience SMB owners demand, said Gore.
“Small businesses absolutely want the small business element,” she said. “Traditionally, the banker was your mentor. That’s who you went to with your first business plan. It behooves them for you to be successful. Now that we have a digitally connected world, who is that mentor?”
Automation can build a bigger, more accessible bridge to capital for SMB owners, but that’s only one piece of the puzzle to ensuring they succeed. Once an entrepreneur obtains capital, they want to be able to connect with their peers and experts in the community to understand what to do with that money — where to invest it, which products to purchase, and so on.
The human element can be underestimated in the success of an SMB, with entrepreneurs not only seeking peer-to-peer (P2P) connections for strategic support, but also for moral support, as running a business can be an extremely “isolating process,” noted Gore.
Tech’s Achilles Heel: Humans
While a lack of face-to-face mentorship and advisory services showcases the downside to a lack of human involvement in today’s automated SMB finance world, Gore noted that humans can also play a major role in bringing the value of automation down.
It’s a seemingly contradictory trend: Technology is both lacking in humanity and may have too much of it.
One of the biggest examples of this conundrum is in the bias of automated underwriting algorithms, which can never truly be unbiased, as they’re developed by humans.
“Bias is a very real thing,” Gore said. “Whoever is behind building a tech, whether implicitly or subconsciously, they’re building it in a way that they would want to access it.”
Everything from the interaction between the user interface and user experience, to the way a product is marketed, can affect whether a technology that is intended to be completely objective is actually able to reach and service everyone equally.
This debate recently came to the forefront when allegations were made against Apple and Goldman Sachs, claiming gender bias in how credit limits were decided for the Apple Card — claims that both organizations have denied.
Yet bias remains, and it’s forcing some industry stakeholders to change the way they approach and talk about some of these issues. For instance, Gore pointed to Hello Alice’s strategy of discussing the demographic of “minority” business owners, like women, people of color, veterans and their spouses, the LGBTQ+ community, and individuals with disabilities.
“If you collectively look at these groups, they’re now the vast majority of business owners,” she said, adding that this mindset shift means changing how SMB financing products are developed and marketed. "Are the engineers sitting behind the computer and coding, and are the designers on UX/UI women and people of color? Are they people with disabilities?"
Finding The Tech-Human Balance
Although humans can certainly stifle technology's ability to solve some of the biggest challenges in SMBs' ability to access capital, they can also be technology's greatest strength in combatting many of these issues.
Finding the right mix of automated technology and human support is key to SMB success, and it is part of the motivation behind Hello Alice's latest Business For All initiative, which aims to connect SMBs with grant funding as well as mentorship.
Gore highlighted the ability for artificial intelligence (AI) and other automation technologies to help strike this balance, too, by ensuring that the most relevant information reaches the appropriate audience of SMBs.
This is particularly important today as local, state and federal officials launch new measures to help SMBs weather the coronavirus storm through tax breaks and affordable financing — measures that Gore said will only be successful if the message is received.
"How am I going to know my city is giving me a tax break, but I have to apply for it?” she said. “How am I going to cash flow my way through this? That's where AI technology is great."
When it comes to developing tools to support businesses, from financing technologies to mentorship solutions, Gore said these products must be designed to avoid bias as much as possible and should be hyper-focused to reach the right target audience. And while automation is essential to providing both financial and moral support for SMBs, the human element cannot be ignored.
"I want to be fully digitally enabled, but I want to see banks and business service providers to come out from behind the computer," she said.