Blockchain technology has been floating around for over a decade now. It became a household name when Bitcoin experienced its initial captivating bull run of 2013.
Apart from its correlation to Bitcoin, not many people outside that specific technological circle know much about blockchain. Since then, it has been implemented across various different industries making processes quicker and more efficient.
How could blockchain change the way a loan is financed
Put simply, it would allow the complete decentralization of the loan process, meaning any reliance on third parties, such as banking institutions, would be eradicated. As a general rule, this would alleviate any operational risks and consequently increase the speed at which a loan could be approved and financed.
Lenders operating in the business loan sector, rely on the analysis of data in order to predict whether a loan is within risk parameters, and therefore worthy of approval. This is why data security is a top priority for lenders. Blockchain prides itself on the security it offers through encryption. By encrypting data, modifying anything within those encrypted documents becomes difficult.
How does blockchain actually work?
Think of it similar to a Google doc. The sharing capabilities are endless. Once you have permission, you’re able to edit the document, making any changes you feel necessary. Blockchains work on the same principle. People are able to join with permission from others in the chain. They can add information, but cannot change what is already present in the chain. Instead of one singular body of law enforcement, there are multiple. This means the possibility of fraudulent activity is reduced significantly when compared to that of a traditional lending structure.
The future for loan providers
With the implementation of this technology, loan providers would be able to create a smooth, uninterrupted service for the SMEs seeking finance. At the moment the majority of lenders are restricted by their location and their ability to expand internationally. Blockchain would offer lenders the opportunity to branch out. International transfers would require no more effort than a transfer within 25 kilometres.
One company began to implement this innovative structure in 2016. SALT is a lending platform providing asset-backed lending to the cryptocurrency marketplace and beyond. Their first capital funding round raised $1 million – not a bad foundation to build on. With the use of blockchain technology, SALT has established itself as a versatile new lender, one to keep an eye on.
As more businesses will inevitably follow-trend, it’ll be interesting to see how blockchain impacts the lending space. It is possible that we could witness the breakdown of traditional banking institutions, as new technological lenders advance.