How Lenders Can Achieve a More Robust SME Loan Pipeline

How much value does your bank or financial institution place on insights from the analyses of audited financial statements for your credit evaluation process? The answer will probably vary from one bank to another, with the need to obtain from business borrowers and maintain on file updated financial statements the only commonality.

Some banks and financial institutions view audited financial statements as understated, mostly because these are audited for tax purposes, and use qualitative measurements, such as whether another bank has already lent to a particular borrower, in their evaluation of business loan applications. This is dangerous as banks have different risk tolerances and collateral arrangements with their business customers.

Now that there is a proven better technology tool, banks should try it. Needless to say, the cost-benefit of adding a robust yet affordable financial condition analysis of a borrower’s audited financial statements as one of the inputs to a bank’s credit decisions is not up for debate. It is, simply put, the only way forward.

Since its inception, CreditBPO has been promoting the shift from collateral-based to risk-based lending, and methods for quantifying management capability and risk profiles against industry trends.

With the CreditBPO Rating Report©, lenders will have a financial condition rating of borrowers as a quantitative metric in the evaluation of your business loan applications to complement your qualitative assessment, thus enabling a more thorough data-driven credit decisioning process.

How do you benefit?

There are many benefits to having financial condition analyses and ratings of your business borrowers as a quantitative metric in the evaluation of your SME loan applications.

First, you can use the CreditBPO Report-as-a-Service (RaaS) as a pre-filter to identify business borrowers who are within your financial institution’s acceptable rating range. These borrowers would then be moved to the next stage, where your internal resources could then be used on better-potential commercial borrowers in the middle of the funnel of the credit decision process, reducing the bank’s costs.

Second, the artificial intelligence-enabled solution can detect possible earnings manipulators. Instead of spending time and resources on mitigating these inherent risks through on-site verification and more extensive assessment of actual cashflow, these flagged applications can be relegated to non-priority status so that your efforts are spent on business borrowers found to be within your acceptable rating range.

Third, the solution saves you time and money. Instead of pouring valuable time in doing analyses and write-ups, your account officers could spend more time on relationship building and focusing on pre-qualified accounts. You can improve the number of accounts being evaluated objectively without adding manpower.

Last, the reports generated by the algorithm that powers the CreditBPO Rating Report are accurate, objective, consistent, and predictive.

In backtesting conducted on the audited financial statements prior to the filing for bankruptcy of one of the largest private employers in the Philippines, our algorithm gave the company a below average financial condition rating and flagged it as incapable of meeting debt obligations. If the solution had been used by creditors, they could have avoided more than USD 400 million in loan defaults.

In backtesting conducted on government-blacklisted SMEs, our algorithm proved predictive with a success rate of 83 percent to 100 percent.

CreditBPO helps partner banks and other financial institutions make credit decisions with real data by benchmarking your business borrowers in key financial metrics. This will not only help with sound decision making but also with the reduction of operational costs and risks in lending.

The CreditBPO Rating Report is the only solution that can analyze data on your business borrowers with consistency and comparability, free of subjective and cognitive biases, deliver complete financial analyses within 24 hours, and give you proof of its efficiency and accuracy, thanks to its algorithm.

Are you ready to achieve a more robust business loan pipeline? Are you set to stop choosing unqualified borrowers and losing money? Schedule a call with us and we will walk you through how you and your organization can leverage financial technology through CreditBPO.