Alan Turing first mentioned it in his paper Computing Machinery and Intelligence in where he suggested considering the question ‘can machines think?’.

Artificial Intelligence, or AI, is the development of computer systems to make them perform tasks that usually require human intelligence.

This involves tasks like speech recognition, visual perception and decision making, among others.

How is this affecting the burgeoning market for business lending?

The financial sector, as we know it today, represents the combined efforts and experience of millions of individuals over 100 years or more of ‘system evolution’.

The point is, it took a long time to get to where we are now.

However, as predicted in Martin Ford’s book Rise of the Robots, the future trajectory of a financial system powered by AI and quantum computing will be a much faster, steeper cycle of innovation than anything previously experienced.

This is likely to hold true also for the growing niche market of unsecured business lending.

The knowledge and skill set currently utilised for everything from credit assessment, decision making, product development and fulfilment will be digitised to varying degrees over the coming years.

There’s no question AI will irrevocably change the way small- and medium-sized enterprise obtain finance.

What many entrepreneurs may not realise is that it’s already having a demonstrable effect right now in three ways:

More personalised lending solutions

The ‘fuel’ for effective AI is data. As more data on businesses and entrepreneurs is deployed towards online lending platforms, it’s producing more personalised business loan offers.

We can already see in the market that some unsecured business lenders are partnering with online accounting software platforms, and that the data collected is being used to target business owners who may need finance.

Banks, lenders and online brokers can use algorithms to not only assess basic eligibility for credit, but also to match business owners with the right type of finance, from the right non-bank lender.

Faster transactions

For aggregators of unsecured business finance, AI offers tantalising possibilities.

This technology can already match business owners seeking a loan with a wide range of eligible lenders.

In future, AI will likely dramatically increase both the speed and depth of loan-matching capabilities.

This will improve our efficiencies and most importantly will deliver an even better experience for our users.

More broadly across the non-bank business lenders we partner with, these improvements combined with forward credit reporting may soon provide full loan approval within minutes or seconds.

Even better, the partly automated funding mechanisms of some lenders is delivering faster settlement and disbursement of funds to business applicants.

For Australian SMEs used to the lumbering service standards of big banks (where loan approvals are still measured in weeks and months), this represents a radical leap forward.

Channel disruption

Individual mortgage brokers and commercial finance broking businesses are currently a significant distribution channel for many small business lenders.

However, ‘next generation’ groups are already using AI to connect entrepreneurs more directly online with the providers of unsecured finance.

The superior speed, choice and convenience of this approach is fast growing in popularity with Australian business owners.

This disintermediation of the traditional distribution model for small business finance probably spells bad news for the viability of many ‘old school’ brokers.

It’s clear AI is already having a substantial impact on unsecured loans for small business.

It is also clear that artificial intelligence is set to further transform it beyond even the rapid innovation evident from both lenders and aggregators in recent years.

Although these changes are likely to challenge existing business models and distribution channels, the improvements in product choice and fulfillment they will deliver will be a godsend for Australian small business owners.

Simon Isaacs is the chief executive of eBroker.com.au.

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