Banks Now Quiz Borrowing Businesses on How they’re Handling AI

Investors, economists and ordinary Americans are understandably obsessed with the pros and cons of AI’s rapid advances.

Bankers are increasingly asking whether—and how—a small-business loan applicant is thinking about and harnessing the disruptive impact of AI.

What has received far less attention is how the same uncertainty is playing out on Main Street—among accountants, consultants, law firms and other businesses—and the small banks that decide whether to finance them, Forbes Daily reported.

The stakes are high. Firms with fewer than 500 employees account for about 44% of US GDP and employ 46% of the private workforce, or more than 62 million Americans.

A significant share of these small businesses operates in fields where generative AI appears most useful.

And though most of AI’s impact may not be seen for years, that offers little comfort to small-business lenders who typically make loans with a 10-year life.

While the Small Business Administration (SBA) backstops about 75% of a 7(a) loan, banks still absorb losses if a borrower fails and must show the agency they followed proper underwriting standards to collect the guarantee.

As a result, bankers are increasingly asking whether—and how—a small-business loan applicant is thinking about and harnessing the disruptive impact of AI.

“Don’t try to sweep it under the rug,” advises Jeremy Gilpin, chairman of $280 million-in-assets Community Bankshares in LaGrange, Georgia. Instead, Gilpin says borrowers should explain how the technology fits into their business.