How the best SMB funders identify signals of fraud

Fraud in small business funding is a growing challenge that the industry can’t afford to ignore. The 2024 LexisNexis Risk Solutions’ Small Business Lending Fraud Study revealed a 13.6% surge in fraud incidents last year, a trend that is expected to continue.

With digital and remote processes becoming the norm, small business funders face a delicate balancing act of reducing friction in the lending process without letting fraud slip through the cracks.

The solution begins with detecting signs of fraud. Adopting advanced fraud detection tools can provide the information funders need to identify potential fraud or file tampering while maintaining a smooth and efficient application process for their small business customers.

Automation’s role in detecting fraud signals

There’s a clear shift happening in fraud prevention. The LexisNexis study highlights how lenders are leaving outdated, manual methods behind in favor of tech-driven solutions. And this shift is essential for small business funders working to stay ahead of growing risks.

However, it’s more complex than plugging in automation and calling it a day. What separates successful fraud prevention from the rest is a well-defined strategy, complete with clear processes and specific thresholds for deeper investigation.

Automation helps with the heavy lifting, spotting subtle fraud signals that human reviewers could miss. Imagine a case where a borrower’s financial documents show minor discrepancies that might otherwise be overlooked in a manual review. Automation can pick up these inconsistencies, allowing funders to act quickly, confidently and proactively.

That said, funders also need to assess fraud signals in context, balancing technology with their risk tolerance. With the right information and clearly defined processes, funders can quickly categorize applications based on the likelihood of fraud, passing only those that need additional review on to analysts and speeding up the overall review process without sacrificing accuracy.

Simplifying analysis with a single score

Ocrolus’ Detect Authenticity Score takes things a step further by offering a clear, actionable score between 0 and 100. This one-number snapshot makes it easier for funders to quickly assess whether something looks risky.

This is where funders’ individual risk tolerance is key. For example, a funder with higher risk tolerance may choose to set their threshold for further review at a “medium authenticity” score of 50-79. In contrast, more risk-averse funders might analyze any document or application score below the “high authenticity” threshold of 80.

Funders can continuously improve their day-to-day decision-making process by reviewing fraud detection performance over time, learning from past cases and adjusting risk thresholds. It’s about creating a system that evolves with the threat landscape, ensuring underwriters can make decisions with confidence.

Faster underwriting for legitimate users

While automation is critical for detecting fraud, it’s just as valuable for speeding up the underwriting process for legitimate applicants. Time-consuming tasks like manual document review often slow things down – but with AI-driven automation, funders can accelerate the approval process without sacrificing accuracy.

Consider Fora Financial, a leading small business financing provider that has facilitated over $4 billion in funding to more than 55,000 business owners nationwide. They partnered with Ocrolus to automate parts of their underwriting process, cutting manual bank statement reviews by over 50%. This allowed them to process legitimate applications faster while sharpening fraud detection efforts.

“We’ve drastically improved our processing times while reducing fraud risk, thanks to automation,” said Jesse Goldman, Vice President of Strategic Operations at Fora Financial.

As fraud in small business lending becomes more common and complex, funders must turn to advanced technologies to protect their business. Automation tools like Ocrolus Detect help lenders stay one step ahead of potential risks while streamlining the approval process for legitimate borrowers.

It’s not just about staying competitive—it’s about ensuring that your operations run smarter, faster and safer.

Ready to explore how Ocrolus’ automated fraud detection can help your business manage risk? Book a demo today.

Key takeaways:

• Advanced fraud detection tools help small business funders reduce manual reviews and improve risk management.
• Ocrolus’ Detect Authenticity Score simplifies the evaluation process by providing a single score that can help inform funders’ fraud prevention and analysis processes.
• Automation empowers lenders to focus on legitimate borrowers, speeding up decisions without compromising accuracy.