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Moody's Revamps Small Business Credit Underwriting

Moody's Analytics is rolling out a new solution to help lenders underwrite small business borrowers.

The company announced Wednesday (June 27) that it is launching RiskCalc Small Business, which uses its existing RiskCalc application and applies it to SMBs. The technology aggregates data from an array of sources, including financial statements, loan payment data and trade line, and emerges with an Expected Default Frequency (EDF) score.

Moody's said the solution aims to heighten transparency for lenders seeking to finance small businesses.

"The RiskCalc Small Business tool brings lenders and credit analysts a fast, easy and very predictive way to score a small business, which translates into more profitable decisions and increased loan volume for lenders," said Moody's Analytics Head of Small Business Lending John Baer in a statement. "Our customers have varying amounts of information about the small businesses they work with. By using even limited financial information available on a firm, we are able to provide a standard set of credit risk metrics that can be applied across our customers' portfolios."

The company added that it has tested its small business risk analytics technology against credit bureaus and data vendors, and added that lenders can use the tool throughout the lifecycle of a small business loan from pre-qualification through monitoring and risk management.

Last month Moody's released its Q1 Senior Loan Officer Opinion Survey and found "a modest tightening" of bank underwriting standards across consumer cards and auto loan applications for the year's first quarter. Other verticals, including residential mortgages, saw their credit underwriting standards unchanged.

Only one bank of 53 surveyed for the report said there was a "modest loosening" of credit standards.

"Our concern stems from lenders' tendency to grow complacent and increase the risk in their consumer loan portfolios, thinking they have plenty of time to tighten before the next downturn," Moody's concluded in its report. "Time and time again, lenders have proved unable to tighten in time."

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