By Oliver Smith on Friday 16 July 2021
A new piece of the underwriting jigsaw, say alternative lenders.
With business trading reports in tatters after nearly 18 months of disruption, alternative lenders are increasingly turning elsewhere to assess borrowers and make underwriting decisions.
For some lenders, elsewhere is turning out to be directors’ personal financial records, which provide an important part of the underwriting jigsaw.
“The director's impact on steering the ship has become, we believe, a much higher factor over the crisis,” Funding Xchange CEO and co-founder Katrin Herrling told attendees at AltFi’s Alternative Lending: What is the State of the Market? webinar last week.
“We are using things like looking at personal credit performance of the key directors versus the performance of the business in terms of keeping up with payments and repayments of loans.”
“And there is absolutely a strong indication, if you have been able to be prudential with your own finances, you are very likely to have had a strong performance during the crisis.”
As part of its recently-launched FXE Technologies lending tech brand, Herrling and co are offering the ability to overlay this with Commercial Credit Data Sharing (CCDS) data, in order to identify businesses which have performed well during the crisis and beyond.
And Funding Xchange isn’t the only one. Business lender Just Cashflow has developed an internal tool called PropensityPlus to score businesses based on their directors, even going so far as to look into directors’ social media presences.
"For example, a new business consultancy focusing on the energy sector wouldn’t usually be able to attract immediate financial support,” Just Cashflow’s executive chairman and chair of the Association of Alternative Business Finance, John Davies, told AltFi.
“But because Just Cashflow’s new system looks over associated online materials, it would find that the lead director once held an extremely senior position with a major renewable energy company and is incredibly well connected and well-positioned to be successful.”
One possible concern, as there is with the broader topic of Open Banking data, is the concern over privacy and the willingness of company directors to go ahead with this kind of personal screening.
“But I think when you are a director of a company that comes with an incumbent responsibility,” Funding Options CEO Simon Cureton told AltFi.
“There may well be directors who don't typically like their personal histories screened, but again, that's the nature of the beast when you're a company director.”
And, until trading for many sectors returns to normal, businesses and directors looking to borrow may simply have to engage with alternative lenders offering new ways of demonstrating their creditworthiness.