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What is the Role of Technology in Lenders’ Due Diligence?

Estimated Read Time: 2 Minutes

JESSICA LAMBERT , 27 January, 2023

Due diligence is the process of research and investigation by a lender on a business before making a crucial lending decision, therefore making it an incredibly important part of the process.

Within the financial sector, it is vital a lender has processes in place to evaluate and understand a business before deciding whether to lend to it. The level and depth of research needed before making a decision will vary on what is available and each lender’s processes.

As a result of technological advancement, a lot has changed in the financial sector. In days gone by, research would have to be conducted manually through physical documents and site visits, however, with advanced technological tools; lenders can access the credit bureau, bank statements and other documents at the click of a button. This allows both banks and alternative lenders to access more information, far more efficiently.

However, is using technology enough for lenders to make an informed decision to fund your business?

Whilst banks and lenders ultimately have access to and use mostly the same information to make their decision on whether to lend, the differences become apparent in how this information is gathered. Technology can be used to aggregate data whereas with banks lots of elements are still very manual. Alternative lenders generally offer a wider degree of flexibility than banks, whilst banks are using a ‘check-box’ system to make their lending decisions. In short, if a company does not meet the required criteria and tick all the boxes, they are denied funding. This “black and white” thinking is problematic as most businesses do not fall into any specific category – particularly SMEs.

A bank’s checklist criteria are very rigid. When making investment decisions regarding SMEs this impacts whether or not they can get funded as there is no room for interpretation of the individual cases due diligence and decision-making in a negative way. On the other hand, there is a danger that if all due diligence is done using an online algorithm it can have the same rigidity and impact SMEs similarly.

However, we must be careful not to rely too heavily on technology – if there is only technology in place and no human interaction, there will be no difference between the banks and alternative lenders, apart from the speed of execution.

Chirag Shah – CEO of Nucleus Commercial Finance says, “A combination of technology and human interaction is vital for good due diligence” he continues “That is why alternate lenders are a step ahead of the banks, using technology in combination with human intuition to make informed decisions”. Ultimately, arming an experienced team with time-saving tools and technology is the best way to ensure that SMEs get access to finance that fits their needs is the Nucleus philosophy.

Since Nucleus incorporate both technology and human intuition in due diligence, we are in better position to make informed decisions, increasing the chance your business will receive appropriate funding. We pride ourselves in being a finance provider with a difference providing ‘Finance that Fits’. We have the financial expertise and product range you need to take any business to the next level.

Our products and services come with guaranteed expertise, honesty and certainty. If you’d like to find out more, take a look at our range of funding solutions and apply now to get started!

View the original article here: https://business-reporter.co.uk/2017/08/29/exploring-alternative-business-finance-issues-nucleus-commercial-finance/





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