[Column] AI: The Cornerstone of Modernizing Federal Loan and Grant Programs

Kathryn Kienast is the executive vice president for client success at Allocore. Allocore powers leading government loans, grants, and fraud prevention programs with a unified platform built for efficiency and security. With trillions in loans and grants processed and billions in fraud prevented, Allocore brings the precision of commercial banking technology to the public sector. Kathryn was named one of the Top AI Execs to Watch in 2025.

Federal loan and grant programs serve as lifelines for small businesses, disaster recovery efforts, and critical infrastructure projects. Yet, the outdated systems supporting these programs are increasingly unfit for purpose, riddled with inefficiencies, and vulnerable to fraud. Many of these platforms were built decades ago, relying on fragmented databases, manual processing, and outdated verification methods. The result is slow application processing, excessive administrative burdens, and an inability to keep pace with the scale and complexity of modern lending needs. If the government is serious about modernization, artificial intelligence (AI) must be at the core of its lending and grant platforms.

The vulnerabilities of legacy systems make them susceptible to increasingly sophisticated fraud schemes, costing taxpayers billions annually. Many rely on outdated verification processes that fail to detect fraudulent patterns in real time. Agencies are still using detection methods that bad actors can easily manipulate, leading to rampant identity fraud, duplicate applications, and improper payments. AI-driven solutions are changing this dynamic by using advanced risk scoring, image validation, and identity verification through facial recognition. These capabilities allow agencies to identify and prevent fraudulent claims before funds are disbursed, protecting taxpayer dollars and reinforcing trust in government programs.

Beyond fraud prevention, AI also revolutionizes the efficiency of loan and grant processing. Federal agencies handle millions of applications every year, yet their outdated systems force staff to rely on cumbersome manual reviews that create bottlenecks and delays. These legacy systems often lack interoperability, meaning agencies cannot easily share data or coordinate efforts, further slowing down the process for multiple programs.

AI can automate much of this work, drastically reducing processing times while ensuring compliance with federal regulations. AI-powered tools assist program administrators by flagging inconsistencies, verifying legal documents, and streamlining approvals. This means funds reach recipients faster, reducing delays and ensuring critical resources are delivered when and where they are needed most.

The lack of modernization also limits agencies’ ability to anticipate and respond to changing economic conditions. Many current systems do not support real-time data analysis, leaving decision-makers reliant on outdated or incomplete information. AI empowers agencies with predictive analytics, allowing them to assess borrower risk, forecast demand, and adjust lending strategies accordingly.

The need for modernization is clear, and AI provides the tools to make it happen. This is not a futuristic concept — AI is already transforming financial services in the private sector. The government must act now to fully integrate AI-driven solutions into federal loan and grant programs. By doing so, agencies can replace antiquated systems with modern, data-driven technology that enhances security, speeds up processing, and ultimately serves the public more effectively. The government must stand ready to urge agencies to harness AI’s full potential and build a stronger foundation for the future of federal lending.