Where a small company sits in its ecosystem of customers and suppliers could not only be a better and more accurate guide to credit risk but also allow challenger banks to more cheaply and securely lend to both them and start-ups, claim academics from Brunel University London.
A team led by computer scientist Professor Mark Lycett with Lloyds Bank and credit checking giant Creditsafe has embarked on an ambitious £676,000 project using semantic technology to define a company’s credit score.
Instead of the traditional emphasis on the private credit history of a company’s directors or requiring personal assets such as family homes to be used as security the project examines the quality of investors, suppliers and customers and the relationships between them.
Said Prof Lycett: “Whether a start-up or a small established company, a business sits in an ecosystem or network of other companies. Current credit scoring ignores these important relationships . Also SMEs don’t work in isolation so a funding decision can have unforeseen consequences.
“The twin drivers behind this project are that start-ups and SMEs still find it difficult to borrow from traditional lenders without security and challenger lenders find it time-consuming and expensive to carry out credit scoring.
“Semantic technology offers the opportunity to provide a different model of credit risk and harmonise the contextual richness of data drawn from multiple sources.
“It also offers lenders potential marketing opportunities. Although not the market this project is aiming at, an easy way to illustrate the possibilities is that a lender might discover that its plumber and electrician clients regularly use the same builder’s merchant. So there is scope for negotiating discounts as a way of adding value to the lender/borrower tie.”