A white paper recently released by a Canadian financial technology firm blueprints how banks and credit unions can leverage artificial intelligence and alternative data to expand lending opportunities for small businesses.
Uplinq Financial Technologies, a credit decisioning support platform for small business lenders, has published “Fair and Accessible Credit for Small Businesses: A Guidebook for Financial Institutions,” which found that budding entrepreneurs who struggle to access credit from traditional lenders based on conventional underwriting criteria may abandon their dreams or resort to less advantageous funding sources, such as loans at higher rates from non-bank sources.
“Uplinq was founded to democratize access to working capital for small businesses through the use of non-traditional and alternative data sets,” says cofounder Patrick Reily. “The findings in this paper reveal that our mission is very much needed.”
The white paper, developed by tech consultancy Cornerstone Advisors, draws on expert insights from senior executives at Visa, the SME Finance Forum, EY, Scotiabank, and more to pinpoint barriers preventing small business owners from accessing fair and affordable loans.
It reveals the macro and microeconomic impact of a lack of access to credit and offers practical steps to bridge this gap through technological and cultural shifts.
“By broadening the data sets and data sources we use in loan underwriting, we can empower financial institutions to extend more affordable credit to small business owners,” Reily said.
“Expanding and improving small business lending not only strengthens communities and stimulates economies,” he continued, “but also helps financial institutions boost their bottom lines.”
The paper concludes that small businesses and financial institutions both stand to benefit from further leveraging AI technology like machine learning to revamp their underwriting and automate decisioning in lending.
“The path to fair and accessible small business lending is as much about transforming the culture at financial institutions as it is about overhauling technology and data,” stated Ron Shevlin, head of research at Cornerstone Advisors.
Expanding the use of alternative data and adopting these technologies offers advantages like improved credit assessment and more efficient collections and loss mitigation, according to Uplinq’s Guidebook.
“Banks and credit unions must foster a culture conducive to innovation and developing sophisticated solutions to longstanding problems,” Shevlin said. “Leaders at the helm of these institutions must act with conviction to educate and reskill, reinforce new practices, encourage problem-solving, and inspire creative thinking to produce tech-enabled transformation.”
Uplinq’s technology has served as a foundation for more than $1.4 trillion in underwritten loans.
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