In lending, especially for small and mid-sized businesses, speed is crucial, with access to capital perhaps a deciding factor as to whether an SMB can get off the ground, expand or even continue to operate.
There has been no dearth of evidence that SMBs have found it rough going when seeking loans across traditional banking channels. The fact remains that banks have been loath to extend credit, and the application process has been one long marked by much back and forth in terms of documentation, ranging from paper to email to in-person meetings.
If speed is key, then automation of data can smooth the runway for SMBs to obtain financing. Moody’s subsidiary Moody’s Analytics recently debuted its MARQ portal for small businesses, which looks to centralize and streamline the interaction between SMBs and lenders,
In an interview with PYMNTS, Nancy Michael, senior director of Moody’s Analytics, said that lending that relies on the traditional scoring offered by credit bureaus “relies on a delinquency model, which looks to determine how likely it is that payments may be made late” and, as such, may shut many firms out of access to lending, depending on information furnished to traditional credit bureaus. In addition, she said, lenders tend to use credit scores “that are weighted to the personal credit score of the business owner.”
More stringent and useful to lenders (and tied to the MARQ score) are models that calculate the probability of default — of course, more serious than mere delinquencies. Such risk assessment does not take into account information reported to credit agencies or the FICO score of the individual who owns the business, predicating risk assessment instead on business financials alone.
Michael said the typical profile of a small business that would benefit from automated risk assessment processes (and from the MARQ portal) are those firms that have at least two years of financial history, with roughly $500,000 or more in annual sales.
Thus, data — and the automated flow of that data between lender and borrower from back-end programs such as QuickBooks — generates a business score based on a 100-point scale, instantly viewable by both lenders and applicants. That score is positioned against companies within the same industry (presented with a typical MARQ score) as a benchmark, with indications of where business practices can be improved.