Financial institutions are investing in small business lending technology as AI presents an opportunity to boost approval rates. 

In the fourth quarter of 2024, fewer than half of small business loan applications in the United States were approved, according to Statista. 

“Despite the fact that a lot of things have improved with technology, small business lending is not one of them,” Laura Kornhauser, co-founder and chief executive at AI-driven credit decisioning tech provider Stratyfy, told Bank Automation News.

To boost small business lending approval rates, Stratyfy has teamed up with SaaS loan intelligence provider Parlay Finance to streamline underwriting using AI, Kornhauser said. Stratyfy offers AI-powered credit, compliance and fraud solutions for lenders, while Parlay helps businesses identify weakness in their applications. 

For small businesses, “there has been this long-standing problem with access to capital,” Parlay Finance CEO Alex McLeod told BAN. If small businesses “are the backbone of the economy, and only a tiny fraction are getting to a ‘yes,’ then there’s a lot of pent-up demand that is currently not being met.” 

However, sparse data makes evaluating the creditworthiness of small businesses difficult, McLeod said. Lenders end up treating small business loans like a consumer loan to a small business owner.  

Parlay taps different types of data attributes, beyond a FICO score, to help lenders understand the big picture of small businesses, McLeod said. Data attributes include business finances, know your business, regulatory information and industry-specific insights. 

Together, Stratyfy and Parlay streamline decisioning for community banks and credit unions. Stratyfy clients include Rivermark Community Credit Union, Texas National Bank and Beneficial State Bank.

Lending tech investments

These financial institutions are also investing in small business lending solutions: 

• $27.7 billion United Community Bank started using AI digital transformation platform provider Newgen in May for small business lending. 

• Digital bank Grasshopper Bank launched its Small Business Administration loan application in May 2024 with account origination solution provider Mantl.