Yes, credit scores are still important for borrowing but
there is more to data being used in the lending marketplace. Lately, there has
been an outburst of digital information. A large portion of it can be saved,
retrieved, collected, and analyzed for discovering consumer behaviors. This is
the reason behind the resurgent optimism in small lending, especially for
smaller businesses.
Big Data Helps
Discover Credit-worthy Businesses/Populations
Every bit of data, from social media updates to the options
made across online discount channels, is saved somewhere. Finding such data
storage resources isn’t difficult. Similarly, there is more to credit history
now with credit card transactions being executed online, complete with email
confirmations delivered straight to the inbox. Digital cash flow can tell much
more than just credit score. It can be tracked over a period to assess whether
a previously defaulted lender is now capable to pay for small loans. This might
be understood as the predictive nature of big data analysis but it can be very
accurate. Just like Google algorithms, data analysis uses small sets of
information. Search results of data analysis help to calculate the credit
worthiness of a potential borrower.
Big Data Stimulates
Lending
Small businesses have traditionally struggled to borrow
regularly from banks, particularly short term loans. As banks became more
reserved about small business lending after 2008, non-banking lending came to
the rescue. Today, business loans are being provided by lending institutions
that are ready to lend in a more data driven way. For instance, a small
business selling cosmetics is most likely to have a social media presence. This
means interacting with consumers frequently. This is like a digital footprint
that lenders using big data can find. Online consumer reviews or public records
that highlight a small business are no longer out of reach. This data is used
to assess risk when issuing a small business loan.
Dynamics of Small
Business Lending
There can be some individual parameters that cannot be weaved
into the intricate data structuring associated with big data. Such data might
remain outside the domain of big data but it can be considered after data
analysis has helped to comprehensively understand the degree of risk involved.
Businesses can have very different credit profiles and margins. This is often
affected by local regulations, unique geographies, and political environment.
Same parameters for cash flow cannot be used across different type of
businesses. Some businesses have a limited business history while some boast of
years of functioning with limited profits. Similarly, transactions can vary
immensely depending upon the business model employed. Thus, different data inspired
parameters need to be established across different lending landscapes.
Why You Should
Consider Big Data Professionals
To collect such data from the web; save it, harvest it, and
make it relevant for future decisions businesses need big data specialists.
These are vendors who can stream through overwhelming volumes of data and
translate it into easy to understand, usable form. Reports submitted from the
analytical team inspire management decisions to approve/decline a loan. The
entire process might take a week or a month, depending upon the big data
capabilities of the lending authority.
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