The influence of AI on SME financing options

Even though AI has been around for a long time, it’s hogging every headline visible to mankind at the moment – and for good reason. When it’s applied intelligently, Artificial Intelligence is set to improve all sorts of business operations from hiring processes to marketing efforts. It can even diversify your small business financing options. 

One of the reasons that AI has been dominating your newsfeed for the first quarter of the year is because of the launch of OpenAI’s ChatGPT, which spurred the unveiling of Bard and AI-enabled Bing. Furthermore, ChatGPT is really the first AI tool we’ve ever seen that is so easily accessible to its users. Not only is it free (for now), but it also features a human-friendly interface. You don’t have to be an AI fundi or a savvy programmer to use the application effectively – and that’s what’s causing waves. 

Why are we telling you this? Well, these unfolding developments have significant implications for SMEs like yours. But the subject of AI is unfamiliar and possibly confusing for small businesses that don’t have a good sense of where and how AI fits into their daily operations. 

As fintech experts who are committed to simplifying business funding, we’ve written this article on how AI can diversify financing options for South African SMEs. After all, familiarising yourself with AI is the best strategy you can adopt to improve your operations. Furthermore, it’s the best way to prepare your business for the inevitable shifts that AI developments will have in industries of all kinds.

Before we get to your financing options, let’s do a quick recap of ChatGPT and SMEs

Because we’re only right at the beginning of the AI epoch, it’s difficult to predict the extent of the transformative impact that tools like ChatGPT will have on businesses. Right now, the model is commonly used to write and revise text or generate code. These capabilities alone can save small businesses a lot of time and money by generating boilerplate text, for instance. This can be a game-changer for small businesses that aren’t fluent or comfortable in producing written content in English and who don’t yet have the resources to hire out that kind of specialised labour.  

At the moment, OpenAI’s ChatGPT can be considered a highly advanced personal digital assistant – but its capabilities are rapidly changing. Its latest model, GPT-4, is a large multimodal model (that just means that it accepts both image and text inputs and produces text outputs). According to OpenAI, while GPT-4 is still less capable than humans in many real-world scenarios, it demonstrates human-level performance on various professional and academic benchmarks. 

But that doesn’t mean that the chatbot is about to represent you in court or diagnose your health conditions. For all its incredible advancements, there are also many limitations to the generative technology which characterises ChatGPT.

How do I know if using AI is right for my business? 

A good guideline to follow when deciding whether AI could ameliorate your business procedures is to focus on a current business challenge that you’re facing. Does it only take you a few seconds to think up a solution? And are five other humans likely to have come up with the same solution? Well, then AI is likely going to do a pretty good job of answering that question or executing that task for you. 

But if the solution is 1) complicated enough to require more than a few seconds and five heads to come up with or 2) relatively ambiguous, then AI is not the right tool to use to approach that particular business challenge. Your humans are likely to do a better job.  

Another important factor to consider when it comes to deciding whether to implement AI into your processes or not is the data problem. One of the biggest contributors to negative AI outcomes is bad data. In the context we’re speaking in, bad data refers to inaccurate, incomplete, or inconsistent data – the kind that can lead to errors and poor decision-making.

 But, as long as you’re feeding your AI assistants accurate and up-to-date financial data, you shouldn’t run into any problems. To put it another way: you’re more likely to have a bad data problem than you are to have a bad AI problem. It’s not that AI tools are inherently inaccurate – it’s just that they require data that is as accurate as possible for the best outcomes. 

Nevertheless, as we’ve seen with the rapid evolution into GPT-4, more change is on the horizon. So, it’s vital to understand its uses and limitations now to prepare your business for the potential it has to create new business models, jobs, and workflows. The only failsafe way to do that is to experiment with the tool yourself.

One thing that remains consistent across all industries is the need for diverse SME financing options. That’s where we’re coming in today. We know that AI can help refine proposals, write a bit of code, and even assist with scheduling challenges. But those are all internal processes. You might not know it, but you may already be using AI to diversify and improve your financing options. 

Leveraging AI for more efficient financial operations and financing options 

Here’s the deal: we’re using AI everywhere, all the time. If you’ve ever used a content streaming service like Spotify or Netflix, you’re engaging with an AI-powered algorithm. And the results speak for themselves, right? AI helps these platforms predict what kind of content you’d like to listen to or watch next. It saves you time, gets you more bang for your buck, and improves your experience of the application. 

The same principle applies to business operations and financing options. If you make use of a cloud-based accounting system like Xero, then AI is right there in the room with you suggesting the most appropriate matches from your contacts and accounts while you’re reconciling your bank statements. 

What’s more is that AI adapts in line with your feedback, meaning that it will learn every time you supply it with new information or, better yet, correct any mistakes it makes. As we said earlier, AI is not about to replace anyone – human beings still need to moderate its output and oversee responsible data use, but it certainly streamlines financial processes that could otherwise take up valuable billable hours. 

Xero lists a few other exciting small business uses for AI, including: 

• Predicting cash flow based on both internal business and external macroeconomic data points 
• Automating back-office business processes
• Helping businesses understand the optimal times to contact customers and suppliers based on an established pattern of behaviour 

Ultimately, AI represents an exciting opportunity to empower SMEs with some of the capabilities which are normally only afforded to much larger businesses. In this way, AI could represent amazing opportunities for growth and scale for small businesses. 

On the subject of growth and scale – how exactly does AI improve my financing options? 

AI is already positively impacting the way financial services work in many ways. It could help create more diverse and efficient financing options in the following ways: 

• By delivering a faster and more accurate assessment of a potential borrower at the least cost, empowering lenders to offer more favourable rates to prospective customers 
• By distinguishing between high-risk applicants and applicants who are credit-worthy but lack a detailed credit history with more clarity and objectivity 
• The incredible processing power of AI can handle huge amounts of data with a level of speed and accuracy that is not possible for human beings 

One of our favourite features of AI is that it allows alternative lenders to reach decisions much, much faster than most traditional lending procedures allow. For instance, when you apply for financing options with Bridgement, you have the option of plugging us into your accounting software program (like Xero, Quickbooks, or Sage). 

That gives us instant and insightful access to your AI-enhanced financial information, which is how Bridgement can reach a funding decision in 24 hours or less instead of weeks or months. Of course, you can also apply for your facility by submitting PDFs of the required financial information without affecting the speed of your assessment. In any case, three things remain consistent: 

1. The paperless application process takes two minutes to complete online. 
2. You can receive near-instant approval for up to R5 million in business funding. 
3. You can receive your funds in 24 hours or less. 

AI isn’t going anywhere. That genie is never going back in the lamp. But understanding how AI can benefit your business (and improve your financing options) is the first step towards preparing for whatever comes next.