For a long time, insurance rates have been explicitly tied to certain, and often rigid, criteria. For auto insurance, this criteria might include the make and model of the vehicle, along with the age, gender, and location of the driver–along with his or her credit score.
But what do credit scores have to do with how people drive, exactly?
There is a correlation, i.e, there’s a relationship between one’s financial responsibility and their responsibility behind the wheel. But the reality is that–at the time–credit scores were simply the best thing an insurer could access in order to assess risk. But in an ideal world, there’d still be better, more relevant data.
Today, of course, they can–devices that monitor driving behaviors enable better decisions when calculating insurance rates, and when it comes to banking and lending in 2021, a similar concept holds true.
Technology has evolved to provide real-time financial data to institutions, facilitating more accurate assessments of both creditworthiness and risk. Yet for small business loan requests, many lenders are still relying on manual processes to identify worthy entrepreneurs seeking funding.
What would it take to get small business lending up to speed?
Using the right tools
The biggest problem with small business lending right now is that many community banks and lenders don’t have the bandwidth to process small business loan applications. And those applicants that do make it through are met with stringent lending criteria that favors large businesses. As a result, so many worthy applicants get turned away.
There’s an easier way to serve small business loan applicants and identify creditworthiness—all while maximizing your resources and boosting efficiency. Small business lending software is designed specifically for small business lending needs such as these. The right platform can transform the way you work with small businesses, helping you:
- Leverage your existing customer base. You already have a wealth of customers with depository relationships. A small business lending platform that integrates with your existing platforms can allow you to pre-approve small business owners based on the real-time metrics available in their bank account.
- Redefine lending criteria. In requesting outdated information, the old way of doing things eliminated many creditworthy applicants. A digital platform enables you to define new parameters beyond credit history or tax forms. Real-time cash flow, YoY business growth, and other factors could all point to a small business’s creditworthiness, and having the ability to customize is paramount.
- Grow your business. When you can digitize the process, you can review more applications. And when you can review more applications, you can say ‘yes’ to more customers—effectively doubling or tripling your lending volume.
Opening up access to funding
After March of 2020, firms with lower credit scores turned to online lenders (35%) and nonbank finance companies (23%) more often than those with higher credit scores, according to the U.S. Federal Reserve 2021 Small Business Credit Survey. Don’t let outdated small business lending criteria be the reason you leave money on the table—and deprive businesses in need of funding. The time is now to modernize, so you can in turn help small businesses in your area thrive.