Loan Zone: Using Alternative Data to Expand Member Business Lending
Traditional checks may be too strict to serve deserving entrepreneurs and organizations that lack credit history.
Within a traditional credit file, lenders consider the “five Cs of credit” to determine whether a small business is worth the risk for a loan. These include credit history, capacity to repay outstanding debt, collateral, capital and conditions, such as the loan’s purpose or the economic environment. Yet many small businesses seeking funding may not have a traditional credit file, which means their applications would be declined if their bank or credit union evaluated their loan application on the basis of the five Cs.