Better SMB Lending by Integrating Banking and Accounting Data

1. Better SMB Lending by Integrating Banking and Accounting Data Lenders can make better, faster, and more confident credit decisions by taking a holistic approach to real time business data using APIs. Lenders and other credit providers are limited in their ability to provide financial services to SMBs. They have historically relied on a small number of criteria, such as a company's annual revenues and credit history, or the credit score of the business owner.

2. Lenders are finding it easier to connect to SMB finance platforms and get alternative data, such as banking information and accounting information, due to the increase in open banking models and fintech options. This allows them to gain greater insight into potential borrowers and ultimately make better credit decisions. They must be able to evaluate finances holistically, and consider both accounting data and banking data to offer lower interest rates to appeal to a wider audience. This post will discuss what accounting and banking data can offer, how they can be combined to provide a more complete picture of SMB finances, and how modern lenders can access both. The value and banking data Lenders often want to see a complete list of financial accounts that an SMB has. This is where banking data comes in. This data allows lenders to see the financials of a company and view actual transactions. ● Incoming and outgoing funds. Overdrawn funds. ● Lenders may hold balances. ● Incomplete payments or bounced payments ● Money is used for gambling and adult entertainment. ● Average bill or invoice value. ● Who and when an SMB trades with. The downside? It's therefore difficult to determine if a payment was made on time or for the correct amount. Accounting data is crucial in this context.

3. Accounting Data Accounting is often the financial center of a company. This centralized data can be used by lenders to help them understand the company's payments and identify any red flags that could indicate bad debt. Accounting data, among other attributes, can be used by a lender to help them size up potential customers: ● Typical payment terms. ● Average days it takes to pay. ● The percentage or concentration of each supplier and customer. ● Paid vs. outstanding costs. ● Balance sheets and statements of P&L. ● Average bill or invoice value. Accounting data can be altered by business teams at any time. This makes it susceptible to fraud, poor bookkeeping, human error, and manipulation. It is therefore essential that banking data be available to verify every detail and identify any discrepancies. Using data sources to improve SMB lending and credit decisions Bank data is the most reliable source of information for assessing an SMB's financial and creditworthiness. Accounting data gives lenders the context and provides insight into the company's cash flow management and operational rhythms. A lender could rely on only banking data to determine if a business can stop paying creditors and suppliers to maximize its cash balance. This would result in a high score for the lender during underwriting and a large loan that they could use to pay off past due debts. It's then a repeat of the previous steps, leaving many lenders in the dust.

4. Counting accounting data would permit lenders to witness the creditor pressure behind the scheme, as well as the integrity of the business, and help them to detour excessive risk. Integrating accounting and banking data using a single financial and accounting data API This equation can only be made work if you choose the right data provider. APIs are often specialized in one type of data (e.g. banking or accounting), use cases, or geographic region. Connecting to multiple data sources (e.g. banking and accounting) can mean having to manage several vendors, integrations, and subscription fees. It's not always possible for any two to work together. Top financial and accounting data APIs have also automated features that link a company's financial records to its bank data. This makes credit underwriting easy and secure for lenders. These two data sources can be used together to make it easy for lenders to cross-reference their records and ensure accuracy.