B2B Payments

Moving Beyond Lending’s ‘Black Box’

For SMBs, getting credit can be a mystery, and lenders are not out to pull back the curtain on how they say yea or nay to loans. Biz2Credit is out to help business owners figure out what matters to lenders and how they can improve their lending profiles.

It’s no secret that determining creditworthiness — i.e., whether a borrower represents a relatively “safe” investment and a loan will ultimately be honored (along with the interest payments) — is as much art as science.

For small and midsized business owners, the loan application process typically involves a mysterious journey, where inputs come in, a decision is spit out and as is often the case with traditional lenders, applications are denied and would-be borrowers are left in the dark as to just why.

Biz2Credit, a financial technology platform that focuses on SMBs, has set out to give business owners some insight into the financial health of their companies, with an emphasis on the moving parts that can make or break a credit application.

With the latest iteration, the fifth, of its BizAnalyzer: Virtual CFO software platform, Biz2Credit has launched its SME Financial Score Simulator Tool, a program that can help business owners figure out which metrics can help shape positive (or negative) opinions of creditworthiness in the eyes of lenders, even before they take the plunge and ask for a loan.

In an interview with PYMNTS, Rohit Arora, chief executive officer and cofounder of the company, said that the simulator offers up insight into how any number of changing variables can impact, in snapshot form, the attractiveness of a loan applicant.

Speaking to the traditional lending process, Arora told PYMNTS that as business owners typically go to a large lender, or even some alternative lending smaller plays, encounter “a black box, which leaves everything to the bank and which uses a model that is like a secret.” Conversely, the Biz2Credit simulator strives to be transparent, said Arora, with the ultimate goal of having clients understand what may be important to a lender.

To that end, the simulator allows users to work across any number of scenarios, with an emphasis on variables that can be changed, with as many as 2,000 options, in order to examine what is paramount and which metrics deserve less attention when it comes to underwriting loans. Most commonly, the variables that can be tweaked stretch across cash flow metrics (such as days in the cash flow cycle, what happens if receivables and/or payables are stretched out or shortened), revenues and also repayment history. Personal credit of the business owner also plays a factor.

In the end, the score that comes out gives a sense of how business strategy can be markedly improved, said Arora, with attention to the business decisions that can truly impact financing. And the simulator tool gives owners clarity on what may be going wrong.

Take accounts receivable and payables, said Arora, offering up an example. “Borrowers and lenders work from the same scorecard,” he said, noting that his firm has found that “more people are setting up accounts payable on an automated basis … but what happens if the accounts receivable gets delayed?” The impact, of course, is a cash crunch. And a crunch could impact creditworthiness given the hypothetical hiccups that could occur, impacting the ability to pay loans back in a timely manner. In this case, a business owner might glean information that leads to determining what minimum levels of cash must be kept on hand in order to mollify lenders’ concerns.

Separately, there’s the ability to find out what a bounced check — again, a fallout from a cash crunch — could do to impact a simulator score and the implied creditworthiness tied to that score.

In terms of visual representation, said Arora, alerts can be set up, and variables can be color-coded (think red, yellow and green) to give a sense of what is working well and what is in need of serious attention.

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