The importance of accurate financial information is underscored, whenever businesses seek additional capitalization, either from banking institutions or potential investors. However, business owners should understand that banks and other financial institutions base a great part of their decision on the results of the underwriting process.
What is Underwriting
Underwriting is a key function that is ever-present in the financial world, because it entails the assessment of risks posed by an individual or a business entity, either as a borrower or as an investment prospect. Although banking institutions and venture capitalists make funds available in exchange for fees, it is important for decision makers to know the degree of risks involved.
That way, in case the borrower fails to settle the loan or the entity fails to deliver the promised return on investment, the funds provider can recover, even in part, the amount loaned out or supplied as capital investment.
The Underwriting Process in the 21st Century
Business owners should have awareness that the underwriting process in the 21st Century no longer rely on simple financial reporting, even if supported by certifications issued by external auditors.
Lessons have been learned from the 2008 Financial Crisis, in which companies like Enron resorted to manipulating financial information, in covering up the fact that they had more debts than assets to present to banks and potential investors.
Through interconnected network systems, developers of technology built databases from which real-time data can be collected, analyzed and interpreted for report generation.
To eliminate the tediousness and inaccuracies of manual underwriting processes, improvements in financial technologies saw the creation of Artificial Intelligence or AI.
Now, providers of underwriting services use financial technologies that not only collect and analyze data for comparative analysis and financial projections. They now have AI-enhanced financial software that can also apply machine learning in establishing patterns. Such patterns or trends are useful in determining the accuracy of good or bad applications.
Some underwriting AIs have the capaability to link countless numbers of structured and unstructured data, which the machine can smartly transform into contextual data that can be used for accurate underwriting.