Harnessing the power of AI for fast loan approvals

Over the past few months, several financiers have entered the market promoting their new super-fast loan approval processes, powered by AI technology.

While a fast approval process is not new, historically it was limited to small loans or credit cards. Occasionally a financier would promote a fast approval process for loans for larger amounts but would charge very high interest rates. These loans were typically unsecured and aimed at businesses that needed credit fast, so they were seen as lenders of last resort.

Since the major banks have embraced AI technology, we have finally seen loan and working capital options made available with quick turnarounds and at reasonable interest rates. Security will be required in the form of a GSA which helps drive these reasonable rates.

What is driving this AI-powered quick turnaround?

As you would expect, the AI tools rely on your data.

If your business uses one of the common cloud-based accounting software packages, lenders are plugging their systems into this software and with your consent, using their credit assessment algorithms overlaid against the last 12 months of your financial data. Most of the credit assessment decision-making relies on this data and so there is very little need for historical financial statements and BAS returns, and other manually input data.

How quickly can approvals now be secured?

We are seeing credit approvals for overdrafts, loans, data finance facilities, and other working capital options in as little as two business days.

Subject to the usual validation and documentation, facilities and loan drawdowns can be made available in just a week or two.

With interest rates starting at around 7% to 8% per annum, these quick credit options are not only more affordable but can be secured without long wait times and without hours and hours of management time producing documentation for the bank.

In recent years, the time it takes to secure a business loan has undoubtedly become longer, and this has allowed banks and other financiers to re-invent this process.

While some checks and balances are still required, including the KYC, anti-money-laundering, and counter-terrorism financing checks, I believe that if you are an existing customer of the bank, there will be very little required to get these facilities in place.

Presently there are some limitations. The lenders promoting this speedy turnaround are trialling this for only SME-style loans (of up to around $1.5m), and there will be a limit to the complexity of your business structure that the system can accommodate. It won't take long however, before we see this rolled out across a much larger cohort of businesses.

What are the downsides to this AI approval process for lending?

At this stage this appears to only work for those who can provide GSA security and is unlikely to be available for those who need to provide freehold property as security. It is also not available for those with specialised lending requirements such as property development.

If you feel this could be useful for your business, get in touch with our debt advisory team. BDO is accredited with all major lenders and can assist you in implementing it.