Do automated lending decisions have a place in commercial finance?

23/08/2018

There’s no denying that computers have significant advantages over humans in the performance of many complex tasks.

They can process data and perform calculations at superhuman speeds. They can learn quickly and narrow complex choices to the most optimal ones. And they can be fed a large amount of information which they can then tap into almost instantaneously.

In many sectors, this can streamline operations, providing both time and cost savings. However, more importantly, this data-driven decision making provides an added benefit.

In the financial services sector in particular, automated processes have come into their own as they provide reassurance that, in a highly regulated market, lending is in line with stringent practices put in place by the relevant bodies, such as the FCA. This automation removes any possible bias or prejudice a human may bring to the decision-making process, providing protection for consumers and businesses seeking finance.

Yet, when it comes to lending decisions, can it always be this straightforward? Whilst the need for fair, unbiased outcomes is important, is this black and white automated approach resulting in fewer businesses accessing the funding they need to achieve their goals?

Whilst algorithms can quickly produce results, humans are able to perform tasks, make decisions and solve problems based not just on intelligence, but also on intuition, common sense and life experiences.

And when it comes to commercial finance, this human analysis can be invaluable for both lenders and business owners.

For lenders

When a funder decides whether or not to lend a business money they weigh up many factors.

Whilst computers are able to analyse credit scores, financial information and affordability against a required benchmark, it takes a human to adequately analyse the risk that a business presents.

For instance, a computer cannot get a feel for the culture of a company, calculate how motivated employees are or judge responses to difficult questions. By using instinct, reading body language and judging atmosphere, a human can be a much better judge of character.

Without this human analysis, in extreme examples, funders could be lending money to businesses which, on paper, present limited risk, but in reality could be one bad decision away from collapse.

Likewise, an automated decision-making process could lead to a ‘computer says no’ scenario where a human has the skills to assess wider factors to make a balanced lending decision based on ‘softer’ criteria which are, in some cases, just as valid.

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For businesses

Similarly, for businesses looking to access finance, technology can be a great help in the process.

You can research options and quickly compare prices and facilities online, apply for funding at the click of a mouse and send many required documents electronically. For business owners who need fast access to cash, this can be an ideal solution.

But consulting the internet for financial decisions isn’t always the right course of action.

Whilst the internet is, of course, a great starting point for exploring your funding options, with so much information available it can also prove to be confusing and time consuming.

And, when it comes to how you finance your business, making a misinformed decision could result in you becoming tied into a funding facility that isn’t right for your needs, which can be costly and ultimately stop your business reaching its potential.

Likewise, comparison websites excel in that they provide an instant guideline to how much something might cost. But commercial finance facilities can be so complex that it’s nigh on impossible to compare the same product from two or three different funders like for like.

Plus, whilst cost is an important factor, the facility’s structure, additional services and the funder’s level of service can be much more valuable and often aren’t even factored into an online quote.

And, let’s not forget that no two businesses are the same and as such will have very different circumstances and funding requirements. So, an online comparison will never be able to gain a full understanding of the business completing the form which could lead to the wrong products being presented.

Therefore, it’s important to always consult an expert who will get to know your business and its needs before giving their verdict on what options might work best for your company.

Final words

The simplicity of some automated decisions may mean that businesses that need support will not be able to access it due to not being able to tick all the boxes. In an economy where businesses need support to get back to growth, the ability to look outside the rigid criteria to support businesses by matching them with the right funding is crucial.

So, whilst technology will obviously always be a vital component of lending decisions, it’s clear that it should never replace the human element completely.

Instead of looking at the two as in competition we should instead be focusing on collaboration and how we can get humans and machines to work together in the most efficient way that will allow funders to lend with fewer risks and businesses to access the most suitable facilities for their needs.

What do you think? Can humans be replaced by technology in commercial finance? Or is the human touch necessary for effective decision making? Let us know in the comments below.