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Sitting on the subway reading the Wall Street Journal last week heading into our Manhattan office, I did laugh out loud when I read this line “The online lenders have automated the process of analyzing this data with algorithms, compared to personal underwriting.” It seems everywhere you turn now, online funding platforms are claiming they have a “proprietary algorithm.”

Warning: Beware of phony claims of “algorithms” in online business funding websites!

Let me explain…….

Let’s start with what an algorithm is at the basic level. It’s a “procedure or formula for solving a problem” as defined by Wikipedia. In business funding, the series of steps for approving a small business loan application requires the underwriter to follow such a procedure. For instance, if a business has 12, 24 or 36 months of bank and or credit card payments showing a minimum and maximum level of cash flows, the business funding process follows a procedure to ascertain if this business is eligible for a certain type of funding and what loan amount.

This process can be completed by a combination of online and offline steps. For instance, the small business loan applicant completes an online form, emails or uploads bank statements and supporting documentation such as tax returns. You’ll spot on our website the Green “Apply Now” section on most pages.

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It is important to state here that the process for most online business funding organizations is NOT a complex algorithm involving hundreds of formula’s. The process does not have some secret sauce which determines if that small business is eligible. Funding sources used by small business funding lenders have requirements and prerequisites that either the small business fits or does not.

It is true that more online business funding businesses have transformed people and paper processes to online forms to simplify the workflows. Yet, this is not an “algorithm” and there is no secret sauce in having small business loans approved. With the meteoric success of Google, many businesses have claimed they possess a secret algorithm when they do not.

We should remember that business funding isn’t like a computer program algorithm which has a singular mission to solve a recurrent problem. It isn’t incredibly complex, involving thousands of data points in various combinations.

In fact, preparing your business for funding commences months before the application process begins with diligent and detailed book keeping and accounting. Here are 4 habits we have observed among thousands of our customers who have been approved for business funding.

1. Budgeting
2. Revenue Projections
3. Monitoring Cashflow
4. Maintaining healthy business financials and bank statements.

Instead of just thinking that the online business funding platform will work some magic algorithm for your small business loan application, you should be wary of online funding platforms claiming they have “an algorithm”, and think twice about applying for a small business loan with an online platform that promotes technology over common sense business practices.

Remember that the questions asked by a small business funding manager on the telephone about business financials and bank statements follows the steps which computer algorithms can be programmed to do. Yet, computers algorithms (unlike humans) cannot detect other elements that factor in on business loan applications.


For instance, when United Capital Source met with John D. Hoffman, owner of Diesel Tech Inc. in Freeport, New York, we realized that there were seasonal elements to the marine equipment repair business that would be impossible for online lending processes to evaluate.

There are many situations like this in our industry where computer algorithms are not able to detect important factors that weigh on the amount of business funding required for businesses in different sectors. It will be a very long time before computer programmers can input qualitative factors to help business funding platforms determine an algorithm to evaluate business loans in all industries.

You can watch the video here to learn more:

We all know that computers are a wonderful extension of the human mind, yet they aren’t a replacement. Having funded thousands of small businesses, our team at United Capital Source is skeptical of the “algorithm” and pride ourselves on being able to speak with industry knowledge about your business, the right amount of business funding and which type of small business loan that best suits your objectives.

Computers, online website forms and algorithms reduce the human component in processing business loans yet should not be relied upon to decide the amount being funded, on what terms and which type of business loan is applicable to your business.

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