Computer says no

Over the last decade or so it has been popular to describe the automation of credit scoring for both individuals and businesses as a “computer says no” or retrograde Modus Operandi.

Long gone are the chinwags on the golf course, ending at the 19th hole with a satisfactory increase in overdraft limits to boot.

But, the reality is that today’s credit scoring is a relatively blunt tool that relies on a series of metrics that can only ever paint a simplified picture of a business’ ability to repay borrowing.

Big data is about to radically change all this.

Businesses generate enormous amounts of information already, describing trading conditions, cash flow, inventory levels and more. This can be compared to historic data to give trend analysis across a wide range of metrics.

Add this data to macro data, including sector performance, client trading data and other widely-held information and one can see that it won’t take long to build a full and detailed picture of the business and to asses creditworthiness on a much broader basis.

Although lenders may say that they are taking much into consideration, our experience is that many borrowers have been rejected because of a single metric and not assessed across a wide variety of information points.

I understand that the process of complete due diligence is laborious and time consuming, however, technology now allows us to capitalise on the data available and lenders need to address this. It is important that a full “360-degree” view is available as there are a significant number of potential borrowers who have failed to secure lending through traditional sources and these businesses are not the basket cases that rejection by these lenders infers.

Far from it. Many are excellent businesses with exciting prospects and they are poorly served by the current system.

We, among many others I am sure, are working on this sophisticated automation and I am sure that this work will yield valuable results.

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