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Understanding business credit assessments

Small business credit assessment

When it comes to your biggest fears; heights, public speaking or even spiders might come to mind. But for an SME owner, there could be quite a few things that keep you up at night. In a poll we recently ran on Twitter you told us that your number one fear when it comes to running a business is not having enough cash flow. But high up there as a top concern for small businesses looking for funding, is the fear of rejection. 

They say the only way to really overcome your fears is to face them, and so we chatted to our Chief Risk Officer Garth Rossiter about how SMEs can better understand the funding application assessment process and set themselves up for the best shot at approval. 

What does it mean to be a responsible lender?

To me, responsible lending is simple. It means that our client comes first. It is making sure we all act in our client’s best interests, that we ensure affordability, that we have clear and understandable terms and conditions and ultimately that we support our clients if they experience repayment difficulties. Our business success is driven by our clients succeeding, not failing.

What does a business credit assessment entail? 

Well, being a fintech business, our application process is online and our assessment and outcomes are largely data-driven. At the same time, we have a phenomenal credit team analyzing outcomes to ensure, first, that our clients get the best offer possible and, second, that the system keeps learning and making better decisions every time. The two main factors we consider are the credit scoring of the business (to assess risk) and then the affordability (which is effectively what we forecast to determine the amount of funding that would be appropriate for any given business). We have a large number of data points which help us to determine the right level of funding and the right score for the business.

What are some of the common reasons for a business not qualifying for funding?

Probably not enough affordability and previous issues with repaying debt (which haven’t been resolved). In both of these cases, we feel it would be irresponsible to provide funding as our assessment suggests that the business would not be able to afford the advance comfortably, or that the business has struggled to meet its obligations in the past.

Why would a business not get approved for the full amount they’ve requested?

Again, we only want to give clients advances where our calculations show this will not negatively impact the business. In some instances, this will be less than the client has requested but, for us, we feel it would damage these businesses if we were to increase debt beyond a certain level. So again, it’s about helping businesses, not hurting them.

If you aren’t approved, can you re-apply at a later stage? 

Of course! Wherever possible, we always want to help small businesses grow. If a business is not approved, we let the owner know the reasons for this which empowers them to make changes and come back in future when circumstances have changed.

What is some advice you would offer businesses that are applying for funding for the first time?

Obviously, it’s worth ensuring you meet our minimum criteria (turnover of over R40 000 per month, trading for a year and being able to provide us with 3 months’ bank statements) but at a business level, I think it’s really important for business owners to understand what their business fundamentally does, their business plan and importantly their working capital cycle so they know when they are likely to need that extra liquidity. Where possible have funding arranged early on to meet these requirements, rather than panic and start missing payments which negatively impacts your credit score and makes access to funding in future more difficult.

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