For entrepreneurs, the idea of applying for business finance tends to conjure up images of being buried under piles of paperwork. There are countless forms to fill in, unending requests for more information and uncertainty around whether the finance will come through. What this comes down to is credit underwriting. It’s the process a lender uses to decide if they can give a business funding and, if so, how much.
Traditionally, the credit underwriting process has been long and laborious. Often taking months – and who knows how much paperwork – to complete. Even after this lengthy process, the answer can sometimes be no.
But surely entrepreneurs have more important things to do? They have expansion plans to write, new talent to hire and innovative products to create. Lengthy applications for business finance – and worrying that these won’t be approved – shouldn’t be getting in their way.
This is one of the reasons why more and more businesses are turning to alternative finance. They’re looking outside of traditional finance for options that are easier to use and faster to deliver funding. Critically, entrepreneurs are looking for companies that provide flexible solutions that fit their individual needs.
As a Fintech in this alternative finance space, our proprietary credit underwriting model has been central to our success. It’s a key part of what allows us to make bold yet responsible underwriting decisions. We can underwrite with agility; funding businesses and sectors that traditional finance options are unable to appreciate. This has enabled us to fund £2.5b worth of business loans and invoice finance to UK businesses to date.
The model uses almost 100 data sources to help us make underwriting decisions. Generally speaking, these fall into four broad categories: financial stability, fundability, feasibility and fraud. For us, the outputs generated by our model are one part of a wider, more holistic view. But what enables us to deliver truly flexible underwriting decisions is a balance between our smart technology and robust in-house risk management.
Our highly-skilled risk underwriters work closely with the customer relations teams to gain an in-depth understanding of each individual business. This enables them to interpret the data-driven outputs of the model within a real-world context. Their overarching goal is to find flexible ways to fund businesses, instead of reasons why we can’t.
Of course, there are times when we have to say no. The decisions we make need to be right not only for our customers but for our investors too. Both the model and our teams benefit from a short duration product which, in turn, allows for short learning cycles.
Open Banking will provide the means to further enhance our models and underwriting capability by enabling us to access more data much faster. This will ultimately improve the experience for our customers.
Our short application process will be even shorter by cutting down on the small amount of manual admin currently involved. Customers won’t need to upload copies of bank statements (in PDF or similar confusing formats), for example, because we’ll be able to access that data directly – with their full permission of course!
This direct access will enable us to look back even further through account history without burdening customers with requests for more information. The data we collect in this way will also be more accurate because it comes directly from the true source. This will improve our risk modelling which could eventually mean lowering our prices. Importantly, our approvals will be quicker, so customers can get funding sooner.
Even as our credit underwriting processes improve and evolve over time, they will always be developed with our core mission in mind. From day one, we’ve been putting finance back on the side of businesses by making it quicker, easier and more intuitive. That means balancing our smart technology with the expertise of our people to deliver finance solutions that help businesses grow.