Chirag Shah, founder and CEO of Nucleus Commercial Finance and Pulse
Cash flow is the lifeblood of every small business. That’s why it’s vital that they have access to the funds they need when they need them the most.
Traditionally, companies would have to apply for a bank loan to get started. But it has now become increasingly difficult to borrow, particularly in the current economic environment where banks are more cautious than ever about who they lend their money to.
Enter Lending 3.0. Essentially, by using technology and real-time data, this new way of lending enables loan companies to provide quicker and more accurate decisions, making it a win-win for both the customer and themselves.
With ready access to this data, they can reduce operational costs, improve efficiency and prevent fraud, as well as continue to comply with regulatory requirements. It also affords greater opportunities for growth and innovation. On the customer side, it can boost loyalty and satisfaction.
In summary, Lending 3.0 delivers four main benefits: access, accuracy, speed and efficiency. Let’s look more closely at each one of these.
Reaching more customers
Previously, if you had a limited credit history or a financial profile that didn’t fit within the norm, as in the case of many startups, it was difficult to access the funds required to get your business off the ground. But all of that has now changed thanks to Lending 3.0 making borrowing available to a wider group of businesses.
That’s because it can capture more meaningful data such as recent cash flow, revenue and customer engagement to establish a more accurate picture of the borrower’s financial behaviour. As a result, the lender can make a more informed decision about the loans that they approve.
Subsequently, lenders can better spread their risks too by diversifying their portfolios to cover a wider range of borrowers. It also allows them to capitalise on new market opportunities that may come their way.
Improved lending decisions
Another problem with traditional lending is that it’s often based on historical data, which may not necessarily portray a borrower’s present financial position. But, by using real-time data, Lending 3.0 ensures that lenders can base their decisions on the most accurate and updated information possible.
Thus, lenders can make more accurate and quicker credit decisions by using a standardised set of factors to apply objective criteria when considering each application. This ensures a consistent, fair and transparent approach every time, eliminating bias or subjective judgments.
It also allows lenders to be more flexible in their loan terms, interest rates and borrowing limits. This enables them to tailor their credit decisions to a business’s particular financial needs and situation.
From a borrower’s standpoint, it can give borrowers access to loans that before they may have been overlooked or turned down for because they had an incomplete or outdated credit profile. That’s a huge boost when it comes to accessing the vital capital needed to keep a business going, particularly in its early stages.
Quicker decision-making
Speed is everything when trying to get a business up and running. Lenders can help to facilitate that by making instant decisions.
By using real-time data, they can approve more than 90% of loans in a matter of seconds. It also does away with the need to fill out hundreds of pages of a paper application and then wait days or even weeks for a decision, as in the case of traditional bank loans.
From a lender’s perspective, it also makes the whole process more efficient, allowing them to analyse a huge amount of data and then make an informed decision on whether to approve the loan application or not. And as they no longer have to do as many manual reviews, they can, therefore, take on more loan applications, while maintaining fairness, accuracy and quality at all times.
In addition, the borrower receives the funds they need, when they need them. They’re also more likely to be loyal and retain their custom because they have had a good experience.
Peak operational performance
As well as the speed and accuracy benefits, Lending 3.0 enables lenders to make their processes more efficient, through the use of data analytics. The end result is enhanced fraud detection and regulatory compliance, as well as significant cost reductions.
Lending has traditionally involved many time-consuming and laborious tasks, including collecting and arranging large data sets, and then verifying if they are authentic and accurate. Now that is a thing of the past as many of these processes can be automated.
Machine learning and algorithms allow lenders to quickly look at and interpret this real-time data. Thus, they can identify key patterns and trends that will allow them to more easily assess creditworthiness and, thus, make more informed credit decisions.
Lenders can also more accurately monitor borrower activity. This allows them to identify any potential risks, and stay compliant with anti-money laundering and know-your-customer regulations, thus, guarding against any legal issues and improving customer trust and confidence.
And as the need for manual labour is done away with workers and resources can instead be directed to more value-added activities such as strategic growth opportunities.
Lending 3.0 is transforming the borrowing landscape for small businesses. By making the lending process faster, more accurate, efficient and accessible, it will only benefit the many, not just the few.
Chirag Shah, founder and CEO of Nucleus Commercial Finance and Pulse has over 20 years of experience in the financial services industry and a deep understanding of the needs of UK SMEs.
In 2011, he founded Nucleus, a leading alternative finance provider, to offer flexible and tailored solutions for SMEs across various sectors and stages of growth. With an understanding of the challenges that UK SMEs face in the current economic climate, Chirag launched Pulse in October 2022, a free-to-use service that helps businesses and accountants gain insights into financial performance with AI-powered data visualisation and personalised dashboards. Chirag is not only committed to driving growth and innovation in the UK business ecosystem, but he’s also helping SMEs better understand their data to boost their profitability and guide them towards success.