According to the U.S. Small Business Administration, there are nearly 30 million small businesses in the country. And while many of those that withstood the pandemic have reopened, two-thirds of them are concerned another resurgence will force them to close again and only 55% claim their businesses are in good financial health.¹ Nevertheless, there is guarded optimism about the future – even though it may be some time before things return to normal.

Companies that are extending credit to small businesses right now should ideally be making their risk assessments based on the size and maturity of those businesses. Consider this example:

Stage 1: Jane starts a business with a partner that is funded by both of their savings.

Stage 2: The business grows and needs more capital – they borrow from friends and family or apply for startup funding.

Stage 3: More growth requires even more capital – they start applying for credit.

Stage 4: They hire workers and their business becomes more complex – now they need additional forms of capital for both short- and long-term needs.

Stage 5: The business grows to 75 employees and is generating significant cash flow, but Jane and her partner need to consider a loan for capital expenses for a new building to support the continued growth.

Clearly, a business’ need for capital changes with each stage it enters as it evolves. For a company to get a more complete picture of business’ monetary needs and its creditworthiness, its size and maturity must be evaluated. To do this accurately, an automated, blended scorecard should be used that is built from both personal and business credit data. If you are still manually underwriting your loans, an automated, blended scorecard will help create consistencies in your decisioning process. And automatic decisions, in turn, will allow your underwriters to spend time on more complex situations.

Types of data to focus on

What follows is the type of data that should be included in a blended data credit evaluation.

• Application
  • Business revenue
  • Household income
  • Consumer debt-to-income ratios
  • Utilization
  • Beneficial owner information
  • Identifying information

• Business bureau
  • Generic risk scores
  • Industry
  • Number of recent inquiries
  • Derogatory information such as past bankruptcies and collections
  • Delinquent trades
  • Months in business

• Consumer bureau
  • Generic risk scores
  • Number of recent inquiries
  • Derogatory information such as past bankruptcies and collections
  • Delinquent trades

In addition to improving the reliability of your business credit decisioning, blended data can also be used for renewal decisions, credit line increases or decreases and identifying cross-sell opportunities, as well as early warning signs indicating a business, may be in financial trouble.

For more information about how to use blended data to make more informed credit decisions, contact your Xactus strategic account manager.

1 https://www.uschamber.com/report/july-2020-small-business-coronavirus-impact-poll