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Getting Started

Start-up loans - the ‘bots’ have arrived

Loan providers are automating more processes. Entrepreneurs have an opportunity to get ahead of the game

Start-up loans - the ‘bots’ have arrived

Vast amounts of data are now available on start-up businesses and their founders. Funders are tapping into these new data sets using advanced technologies to find and assess high-potential businesses. The rules of start-up funding are being re-written and savvy entrepreneurs will want to understand how they can win the bots over.

Loans now reaching start-ups

Traditionally, loan finance has not been available to start-ups. Lenders still typically want to see a trading history of around two years, often longer, before even considering a loan. But this is changing.

One lender targeting start-ups is Just Cash Flow plc, which uses a process they have called ‘augmented intelligence’. According to CEO John Davies, this takes advantage of machines’ ability to process large amounts of data very quickly, and couples it with experienced human insight.

Finding high-potential companies is mostly automated. Just Cashflow’s technology screens new companies registering with Companies House – around 16,000 per week1 – and identifies those which have a high potential to be successful.

John says this focusses mostly on the founders, not so much the characteristics of the business itself: “It is people and their actions who are mostly responsible for a business succeeding, and technology allows us to identify the ‘DNA’ of someone who is likely to be successful. The business might be a start-up, but the people are not necessarily starting-up. And particularly in the first few years of a business, it’s all about the people. Good people will learn and adapt to make that business a success.”

John does however stress that rolling out loans to start-ups is not a replacement for equity finance. His company targets businesses that will be able to generate revenues and profits very quickly and will be able to service loan repayments. Businesses where revenues and profits are still some way into the future would not qualify and are more suited to equity funding.

New data sets

Just Cashflow’s algorithm looks at a range of information to identify target companies. For example, it looks for founders who have appropriate experience (sector-specific, managerial and entrepreneurial experience) by searching sites such as LinkedIn. Their behaviour is considered, such as how quickly they get their website indexed, how well they have built a professional social media presence (perhaps a widely-followed blog, Facebook or Instagram account), and when they register for VAT. John says: “These are just some of the actions which are typical of people who are setting out their stall to create a successful business.”

Of course this can work both ways. According to John: “We tell our children to be careful on social media because some posts might look bad in a future job interview. The same thing applies to entrepreneurs who might be talking about their own business, clients or suppliers. Everything you put on the web stays on the web.”

After having been identified, the shortlist is manually reviewed by experienced underwriters with the most promising businesses invited to apply for a loan. If they do so, even more data becomes available to Just Cashflow before a final decision is made as applicants then give permission for it to access further data such as full credit reports. See Entrepreneur Club article Five reasons loans are declined for more information on what will be considered by loan underwriters at this stage.

Expect more automation

Rob Warlow, founder of SME loan broker Business Loan Services, says he hasn’t seen any other lenders deploy similar practices to Just Cashflow yet, but he wouldn’t be surprised if they are working on similar initiatives: “In today’s environment, this is the next logical step in loan underwriting. If useful, alternative data is out there, why not use it? And we have lots of brainpower in our ‘Fintech’ sector looking into things like this.”

What he also points out is that for larger loans, lenders are looking at similar data points anyway – such as a detailed assessment of a business owner’s experience – but are doing so manually. He says: “What is new here is the process of automating these assessments and making it efficient for lenders to use this data to assess smaller loans. This is only economically feasible for most lenders right now when it comes to larger loans.”

Rob sees these developments in automation as a positive. “For brokers like me, it could be seen as a form of cutting-out-the-middleman because you have lenders approaching businesses directly with most of the data they already need, so a broker isn’t needed. But if this development helps businesses to scale-up faster it gets them to the position where they will be looking for larger, more complicated loans (where brokers would typically be needed to advise companies on their loan applications) sooner – because they are growing faster. And that’s a great development for everyone.”



The opinions expressed by third parties are their own are not necessarily shared by St. James’s Place Wealth Management.

1. Just Cash Flow plc, February 2020.