Merchant Advance Blog

Blog Article: Thoughts on Automated Underwriting – No Robots

S.H Horikawa – Star Strider Robot (スターストライダーロボット) – Front

Without sounding like too much of a fanboy, your blogger can safely say that The Economist is one of his favourite reads. It’s a weekly digest on the world that tackles topics that often range far beyond the financial or economic. You should read it.

In my perusal of the magazine’s latest issue, I came upon this fascinating article.  Its writer examines the linked and complex relationship between technology and labour, going back to the time of the industrial revolution. It was once feared that increased automation and mechanization would create a dire vacuum for the supply of human labour, despite the incredible surging effect that machine-powered work had on the world’s dominant industrial economies. Now, in the computer age, there are new questions to struggle with.

“The combination of big data and smart machines will take over some occupations wholesale; in others it will allow firms to do more with fewer workers. Text-mining programs will displace professional jobs in legal services. Biopsies will be analysed (sic) more efficiently by image-processing software than lab technicians…”

There is certainly evidence that computerized and data-centric approaches have affected the consumer and business lending marketplace as well. The Economic Times business glossary, for instance, recognizes a definition for “Automatic Underwriting:”

“… Involves screening of loan applications through pre-designed computer programs (commonly known as automated underwriting engines) which results in faster and efficient decision making on the sanctioning of the loan application. These automated underwriting engines generate almost instant decision on loan applications, thereby saving time. Also, since it is algorithm driven, decisions taken are generally free from human errors.”

At Merchant Advance Capital, our team has developed some incredibly smart data-wizardry that helps us make key decisions about your application, find the right withholding percentage for your business, and suggest an ideal way to get you up and running with a sustainable flow of working capital. Modern information sources such as provincial databases, Equifax records and other online systems definitely play a part in how we work.

However: this does not mean we are making automated decisions! Our underwriting team would probably be a little bit offended if we suggested that they might be discarded in favour of a computer program. Quite simply, we believe that your small business is unique enough, and distinct enough as a living, breathing commercial organism, that an automated process might not understand it fully. There are so many factors that need to be taken account – ones that go beyond your financial statements. As we mentioned in an earlier blog this week, evaluation of things like your relationships with landlords and suppliers and even social media content can come into play during the underwriting process. Conclusions about these information sources need to be drawn subjectively for the most part.

Two key tenets in the argument for automation are increased speed and decreased overhead cost. To address the first of these concerns: even with a human-powered underwiting framework assisted by computerized data processing, the turnaround time to funding on a Merchant Advance application can be as short as a few days.

Taking a look at the second, consider this quote from the 1997 paper by Wayne Passmore: “The Effect of Automated Underwriting on the Profitability of Mortgage Securitization.”

“… automated underwriting is unlikely to decrease processing costs uniformly for all… applications. Instead, it makes identifying and processing low-risk… borrowers less costly, but may not significantly lower the costs of identifying and processing relatively high-risk applicants.”

In short, Merchant Advance Capital doesn’t employ robots. Our clients are people, and it is the personality and specific approach of each client that drives their business. As such, we value the input and intelligence of our team of people in determining the best way to secure funding for your business.

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