Summary of Key Points
Small business lenders in the United States, such as banks and credit institutions, are now requiring businesses to submit AI development plans as part of their loan approval process. This is because AI, especially generative AI, is disrupting many industries. Lenders are concerned that small businesses that are not prepared for the impact of AI may become unable to repay their loans in the future due to the replacement of their services by AI. Banks no longer only consider a company's financial statements (such as cash flow and collateral) but also assess its ability to adapt to these technological changes, which has become a new criterion in loan evaluations.
Detailed Explanation
1. Why Do Banks Suddenly Care About AI? – Fear of Ten-Year Loans Turning into “Bad Debts”
Banks typically offer loans to small businesses with a ten-year term, which means a long repayment period. If a business’s operations can be easily replaced by AI (for example, a travel planning company that was rejected because an AI chatbot could perform its services in seconds), the company might have gone out of business by the time the loan is due, leaving the bank unable to recover its investment. Small businesses play a crucial role in the U.S. economy, contributing 44% of GDP and employing 46% of private sector workers. Many small businesses engage in tasks that AI excels at, such as accounting, consulting, legal document writing, research, and analysis. Banks need to predict whether these businesses will survive in the age of AI; otherwise, the default rate on loans could increase (the SBA loan default rate has been 8% over the past decade).
2. Want a Loan? Answer These Two Questions First – How Does AI Affect Your Business, and How Do You Plan to Use It?
During the loan approval process, banks will directly ask: “How is AI disrupting your business, and how do you plan to utilize it?”
- You Can’t Avoid Talking About AI: If a company claims it doesn’t use AI at all, banks will be skeptical. This could indicate poor management or a failure to keep up with technological advancements, which may lead to loan rejection.
- Provide Specific Details: For instance, if a law firm uses AI to draft legal documents, it must explain how much time this saves and in which steps the AI is used. The firm also needs to provide policies regarding data security and quality control when using AI, and these documents must be submitted to the bank.
- Proven Benefits Can Boost Chances: If a company can demonstrate how AI improves efficiency and optimizes its operations, it will increase the likelihood of obtaining a loan.
3. AI Also Helps Banks “Save Time” – Faster Loan Reviews
Banks are themselves adopting AI technologies. For example, the financial technology company Lendesca has developed AI software that can generate credit memos in just two hours, compared to the previous one-week process. By automating these routine tasks, bank staff can focus more on assessing a company’s long-term viability, which involves not only financial data but also its business model and adaptability.
4. Which Small Businesses Are Most at Risk? – Knowledge-Intensive Services Are Hit First
AI is particularly effective in tasks that require intellectual effort, such as writing, research, and analysis. Therefore, the following types of small businesses are at high risk:
- Law Firms: AI can summarize case laws and draft legal documents, potentially reducing the time lawyers spend on these tasks. Banks will evaluate whether law firms’ business models will change (e.g., shifting from charging by the hour to charging based on results).
- Accounting/Consulting Companies: AI can quickly process data and generate analysis reports; companies that do not use AI to improve efficiency may fall behind their competitors.
- Creative Services: While AI has not yet completely replaced these services, it is already competing for a portion of the market.
5. No Defaults Yet, but Banks Are Preparing in Advance
Although no businesses have gone bankrupt due to AI, lenders are already incorporating AI into their loan screening processes. For small businesses, financial health (cash flow and collateral) remains essential, but an additional criterion—AI adaptability—is now being considered. In a world where AI continues to advance, having good financial performance alone is not enough; companies must also be able to keep up with technological changes to survive.
In One Sentence
AI is not only competing for jobs but also affecting small businesses’ access to loans. To get a loan from a bank, you need to show that your business can thrive in the age of AI. Banks’ logic is simple: I’m lending you money for ten years; you need to convince me that you will still be in business by then.