How FinTech Has Changed Underwriting Forever

2 min read • Nov 29, 2017 • Emad ElShawa

Ask any small business owner and they will tell you that access to capital can be one of the most challenging parts of running a small business effectively. Small businesses often search for business financing to expand their business, make inventory or equipment purchases, or survive cash flow problems.

Business Financing: The Old Way

Traditionally, banks have extended credit to small businesses based on the business owner’s individual FICO or personal credit score. Their score is then used as a baseline to underwrite, or assess, a business’s creditworthiness based on a variety of factors.

Components that make up a credit score include things like credit length, payment history, income, debt levels, and debt-to-credit ratios are all analyzed to provide an overall picture of the borrower’s ability to pay back the loan. Oftentimes, the underwriting process can take weeks or even months before the bank returns a decision, and most underwriting processes today involve very little analysis of the financial health of the business itself.

As a result of using personal credit as a creditworthiness indicator, many small business owners are denied credit because of their personal credit track record, despite the clear financial strength of their business.

The use of personal credit scores to weigh business creditworthiness is why the commercial lending approval rate for small business loan applications is a dismal 20 percent. Personal credit is clearly not the best barometer for creditworthiness or the best indicator of how a small business will perform in the future. Therefore, there needs to be a substitute for using personal credit—one that is better aligned with the financial health of the business rather than that of the business owner.

Business Financing: The Fundbox Way

Enter financial technology, or fintech for short. Fundbox Credit is one example of how fintech fundamentally changed the face of the small business loan underwriting process. Partly because it’s able to aggregate large amounts of data into machine learning algorithms to make a credit decision in as little as a few hours, and base it on the overall business, not just the owner. This is entirely due to cloud computing and the growth of business applications that provide commercial lenders with more data on small businesses than was previously available. Now, it’s possible for lenders to quickly and easily loop in the transactional data from multiple data sources in order to deliver a clearer picture of financial stability and creditworthiness faster and at scale.

The more data borrowers can provide about their businesses, the higher the likelihood that they will receive a favorable credit decision. During this process, borrowers submit several key pieces of business data that is used to determine their credit limits. The result is that borrowers now have easier and faster access to capital to grow or sustain their businesses.

Although fintech companies still account for a relatively small portion of total small business loans originated, their impact on the small business lending industry is undeniable. Fintech lending companies have changed the underwriting process forever. As they continue to grow and innovate, it’s becoming increasing clear that they will positively influence small businesses’ access to capital and become a viable financing solution for decades to come.


Emad ElShawa

Emad ElShawa is the Business Operations and Strategy Manager at Fundbox. He has spent the entirety of his career working to make financing easier and more accessible to the small business community by directly working with business owners to uncover and address the potential pitfalls of small business lending.