GenAI Bridges Small Business Lending Gap

An unavoidable truth in business is that it frequently takes money to make money.

And in today’s world, where small and medium-sized businesses (SMBs) often find themselves struggling to secure the capital they need to invest in their growth, innovative solutions are crucial.

That’s why for the “AI Effect” series, PYMNTS sat down with MJ Jiang, chief strategy officer at Credibly, and Ryan Rosett, Credibly’s co-founder and CEO, to discuss how artificial intelligence (AI) is reshaping the landscape of SMB underwriting.

“Underwriting small businesses isn’t simple,” Rosett said, explaining that while having access to working capital is “imperative” for small businesses, there is a gap in the market for alternative lenders to fill.

Still, any effective financing solution worth its salt still requires a balance of risk assessment and customer-centricity. That’s where the use of the generative AI comes in.

“Underwriting is governed by risk assessment,” Jiang explained. “There’s a lot of information about these businesses that is being collected throughout the underwriting process … and there’s a great opportunity in applying generative AI to extract more information and more understanding about the relationships between that information. It’s something that, when using traditional methods, hasn’t been possible up to this point.”

Such advancements are crucial for refining underwriting processes and fostering a more customer-centric approach.

Read more: AI Poised to Drive Small Business Lending Decisions

Streamlining SMB Underwriting

By leveraging generative AI capabilities, alternative lenders and FinTechs are able to revolutionize traditional approaches to credit assessment, providing faster, more accurate and personalized solutions to small businesses by incorporating vast datasets and advanced algorithms to derive insights that were previously inaccessible.

“It’s been an unbelievable journey from where Credibly started in 2010, which was nearly 100% manual, to now, where there is an enormous amount of automation that is removing the subjectivity in underwriting by creating a more objective decisioning process that enables better risk calls,” Rosett said.

“Using the technologies that are currently available is helping us to augment the decision-making skills of our incredible underwriting team in a measurable, predictable way,” he added.

That’s because, from analyzing cash flow patterns to detecting industry trends in real-time, AI-driven underwriting has ushered in a new era of precision and efficiency that has become table stakes against the backdrop of changing end-user needs and expectations.

“Digitization has been transforming how people experience products across a variety of industries. Now, customers are expecting a seamless experience. They’re expecting decisions to be given to them in three, four hours versus a number of days. They’re expecting that they can communicate and complete an application online, with the entire journey being on a computer, or particularly on a mobile device,” Jiang said.

Read also: Open Banking Allows More SMB Data to Be Used in Financing Decisions

Future of SMB Lending

PYMNTS Intelligence has estimated only about 8.5% of SMBs have said that they’d found working capital loans from banks were readily available. More than half of respondents said coming into 2024 that they would consider tapping new financing. Of the companies mulling new financing, the data show that more than 26% would consider using an online lender; about a third would use a large national bank.

“Using generative AI to help figure out what industry this business is in and do it in a matter of a second, less than a second, not only does that speed up the decisioning process, it speeds up the accuracy,” Jiang explained.

And the ongoing shift towards more objective, data-driven decision-making processes heralds a new chapter in how small businesses access the capital they need to thrive, and as these technologies mature, their potential to transform the financing landscape promises a future where capital access is no longer a barrier to growth for small enterprises.

“I don’t believe banks are going to enter back into the smaller, sub-$250,000 lending space. There’s a huge window of opportunity to move more and more toward automation,” Rosett said.