The growth of alternative finance and Fintech has driven a lot of changes in the finance world, especially where technology is concerned. There seems to be a growing attitude that you are either a ‘traditional lender’ or a ‘tech based’ lender. For some reason, there doesn’t seem to be much of middle ground.
From Creative Capital’s point of view, we are certainly in the ‘traditional lender’ camp. But what does this actually mean? To us, it means decisions and relationships driven by humans, not by process maps or automation. Naturally, there are processes and procedures which help guide what we do, but we must recognise that human beings can do things a computer can’t do.
A simple example of this is a deal we looked at earlier in the year. Our prospect came to us via our website having found us through Google. They were a scaffolding company that on paper ticked all the boxes. Well established, a strong balance sheet, excellent debtor and what looked to be easy to verify debt. From an automated process point of view, it ticked all the boxes. Something just didn’t feel right though. When our underwriting team looked at the deal, alarm bells rang, and somethings just didn’t stack up. This was supported by the BDM who had a long conversation with the prospect. Gut feeling and a combined 50+ years of underwriting and industry experience told us that this was not a deal to do. Less than 6 months later, our prospect is subject to a winding up petition, having amassed an impressive 7 CCJs totalling over £191,000, in only two months. Certainly not a company we would want as a client, and what looks like a deal well left alone.
On a more positive note, human underwriting can also allow us to do deals that an automated system would not allow. By ensuring we visit all prospects, we can sit down with them and understanding their needs, processes and what we are being asked to fund. When we need to, we can also arrange for an underwriter to visit the client as well to make sure the final decision maker fully understands what we are doing. This method has allowed us to do deals that would not look a good deal on paper, but have worked very successfully for us and our clients. Of course, when it comes to lender/borrower relationships as well, we believe that getting to know our client is just as important as it ever has been, especially if things take a turn for the worse. Who are you more likely to repay – a “computer”, or the person you speak to on a regular basis and with whom you have a close relationship?
The point is that resisting much of the move towards being a tech based company enables us not only to avoid deals, but also to take on deals which do not tick the boxes. The long term answer is that the ideal method is somewhere in the middle. Although there are advantages to using technology, you still can’t beat experience, a conversation and seeing the whites of their eyes.