Merchant cash advance funding has forever changed the way we see traditional financing, as it has democratized access to capital.
The backbone of this increasingly popular alternative to big banks and credit unions? Underwriting.
However, many small enterprises (SMEs) in need of financing often lack the financial security, let alone the data, that underwriters need to easily determine creditworthiness.
Here is where digital funding technology and big data are saving the day.
In this article, we’ll explore how innovative funding platforms are helping to make the underwriting process more agile and reliable for MCA funders. As a bonus, we’ll also take a brief look at what role the underwriter of the future will play.
Underwriting in Alternative Funding: A Brief Overview
Traditionally, underwriting in the world of MCA funding has been a time-consuming process. For many MCA funders out there, it still is.
That’s because, for many, the process involves manually reviewing PDFs, phone calls with borrowers to request further documentation, never-ending email chains, and spreadsheets upon spreadsheets of scattered information. And often without any guarantee that the data is even enough.
In essence, it’s a time-consuming, error-prone, and limited way of working for underwriters, who are then responsible for making judgment calls based on this limited data.
This manual underwriting can take several days or weeks to complete, and typically results in frustration and anxiety for the merchant, as well as significant overhead for MCA funders.
The good news is that, thanks to digital funding tools that automate underwriting, merchant cash advance funders can now work faster, expand their reach, and even offer more competitive loans to SMEs.
It’s a true win-win for both merchants and funders!
How Technology Is Improving Underwriting
So, how exactly is technology boosting the underwriting process?
Here are five ways modern SaaS funding platforms have made underwriting for MCA funders more reliable and profitable.
1. Alternative Data Sources for Risk Analysis
The merchant cash advance industry has long understood that traditional banks’ reliance on FICO scores can leave SMEs without funding.
Conversely, funding platforms provide MCA funders access to a wide variety of alternative data sources like bill payments, social media activity, and property records.
Moreover, these platforms also further streamline the underwriting process by organizing this data in a way that adds value to risk assessments.
As a result, MCA providers can assess risk more accurately, make more informed decisions, and support a wider range of merchants—including those with limited credit history.
2. Automation
Automated funding systems have truly revolutionized underwriting, making the process faster and more efficient for MCA funders.
By incorporating innovative decision engines, this technology:
- Quickly analyzes applicant data, reducing the time spent on manual reviews and helping funders close deals faster.
- Minimizes human error, ensuring consistent and real-time data for decision-making.
- Lowers costs, as it cuts administrative overhead while improving efficiencies, enabling funders to offer loans at more competitive rates.
Meanwhile, with the MCA regulatory landscape constantly changing, funding platforms offering automation can also continuously update and apply new disclosure standards.
3. Customer Experience
Technology is also transforming the customer experience in the alternative funding industry.
Specifically in underwriting, MCA funders can provide a bespoke loan experience for each merchant, according to their individual needs and situation.
Technology also makes the underwriting process much more transparent, as funding platforms provide borrowers with multiple communication touchpoints to track the progress of their applications and receive updates in real time.
At the end of day, all this leads to a more positive customer experience and better funding outcomes.
4. Scalability
Traditional financing often involves manually verifying each loan applicant, which is not only slow, but also limits scalability.
Thankfully, this process is being streamlined with the rise of funding platforms.
By means of the right tech, MCA funders can scale more easily thanks to security features like eKYC and eSigning, which quickly verify identities—no matter where the customer is located.
This frees up underwriters to focus on more complex, higher-value deals, ultimately helping MCA funding operations grow and evolve.
5. Turnaround Time (TAT)
A long and slow application period is not only costly for merchant cash advance funders, but it can also lead to a high rate of abandonment on the customer side.
Luckily, technology has completely transformed the underwriting process by reducing the extensive and lethargic application process, leading to faster turnaround times.
Powered by data analytics and agile tech, new platforms have made it possible for underwriters to evaluate and classify loan applications more quickly—and with better accuracy.
This not only reduces costs but also boosts customer retention by getting businesses the funding they need, faster.
As more funders adopt funding platforms and quicker funding processes, demand for MCA services is expected to rise, fueling even more innovation and growth in the industry.
The Underwriter of the Future
Will emerging technologies like AI and IoT eventually make underwriters obsolete?
While there are arguments on both sides, the answer seems to be a pretty sound no—with an important caveat.
Over time, digital funding tools will increasingly take on the lion’s share of the burden when it comes to data gathering and risk analysis.
However, technology is unlikely to replace underwriters as subject matter experts.
Most industry leaders agree that:
- There will always exist the need for human judgment, especially in complex deals.
- Relationships will continue to depend on the human touch, which will only grow in importance as a key competitive differentiator.
Our expert opinion is that underwriters should develop new skills to keep pace with the evolving industry, recognizing that emerging tools will continue to reduce the need for time-consuming manual tasks traditionally tied to underwriting.
Skills in business development, sales, advanced analytics, and product marketing will be increasingly valuable as the industry continues to grow and innovate.
Onyx IQ: Empowering MCA Funders With Smarter Underwriting
Onyx IQ provides a single ecosystem that greatly simplifies all merchant cash advance underwriting functions.
Developed for MCA providers by MCA providers, our funding platform allows you to automatically access and analyze real-time business performance data—empowering your underwriters to make informed decisions faster.
In other words, Onyx IQ gives you all the tech power you need to speed up your MCA funding process.
Ready to revolutionize your MCA underwriting process? Book a demo with Onyx IQ today and see how our technology can help your operations, evolve, and stay ahead of the competition.
