Are lending decisions based on human intuition or digital algorithms? The best answer can include a combination of the two, say Boost Capital
Innovation sits at the heart of our business, and, as digital technologies continue to evolve, Boost Capital constantly seeks out those that will make us better, faster, and more efficient.
Our peers in the alternative finance field share our desire to find new ways to streamline processes and decision-making, all with a view to delivering funds to small companies with the minimum of fuss, hassle, or delay. Whether it’s the greater use of algorithms to speed up loan and funding applications, or embracing the expanse of online platforms to reach more people, our industry is truly pioneering, and forging a new path in SME finance.
An important part of this push involves asking ourselves some difficult questions about the appropriate use of technology, and where human input is still necessary. Can a computer accurately assess a company’s eligibility to borrow? Has too great a reliance on automated systems played some part in the current funding drought for small firms? What role will technology have in the new referral process when banks start introducing SMEs they’ve rejected for loans to alternative providers? The sharing of that data is really critical to the underwriting process for us in the alternative finance industry, so the more automated it can be the better to get the necessary information across as quickly as possible.
These issues were just some of those being discussed recently when we hosted a roundtable event in central London with a group of alternative funders. Our overarching topic was ‘Man and Machine’, exploring the role of technology in alternative finance, and how it’s changing the lending market. It was a fascinating, and lively debate, revealing a variety of views on what tech can achieve, how it might be used to greater effect in the future, and, of course, the value brought by man’s insight and experience – qualities no machine can ever entirely replicate, or replace.
As well as highlighting the need to overcome resistance to technology among many small business bosses – and, occasionally, among the commercial finance brokers that work with them – the discussion also ranged into the differences between the UK business finance scene, and that in the US. We have thorough experience of the latter, since Boost Capital’s US parent company, Business Financial Services, launched there 15 years ago. And the truth is that the gap between Britain and its transatlantic cousin is great in terms of SME lending. The UK still lags behind in its adoption of technology, and is massively restricted by the dominance of the big four banking providers. Alternative finance in the US is also better established, and effectively now part of the mainstream.
The basic facts are well known – the four main high street banks account for 85 per cent of small business lending in Britain. And I don’t need to say that those banks have been loath to free up funds for SMEs since the economic downturn. I realise they’re in a tough position. The banks have capital constraints, there are tough UK regulations to take into account, and the banking institutions are collateral focussed. The truth is that, for them, small companies aren’t desirable borrowers, particularly those in industries such as hospitality, where firms have limited assets to secure against borrowing. Combine the perceived risks of lending to small firms with the post-2008 lending landscape, and it’s hardly surprising so many small companies in Britain struggle to get much-needed capital from their regular banking provider.
There’s no doubt that technology is a fact of life today, and it will continue to drive how we operate for, lend to, and communicate with our customers. Our roundtable explored these modern-day dilemmas in great depth, so we’ve produced a series of white papers giving further detail of the topics covered, and conclusions reached. You can find the first of these on our website, with more to follow over the coming weeks. But, just as the digital world continues to evolve, so will the discussion about how we use its latest offerings. I’m proud that the alternative finance industry is leading the way in addressing these complex issues. And we realise that the conversation isn’t over yet. In many respects, it’s only just begun.