3 Tips to Improve Credit Assessment in Commercial Asset Finance

As asset finance firms continue to drive growth, some will look to improve scalability of their credit function while others may look to expand into additional sub-verticals, lending against equipment or assets that are highly specialized or have limited secondary markets.  These changes will push these organisations towards enhancing their credit assessment capabilities across the commercial asset finance function.

Particularly in specialised verticals such as healthcare or construction, analysis of the borrower’s financial information, including ratios, cash flows and performing forward looking projections becomes much more important.  There is a lot that technology can do to help in driving scale and lowering credit risk when financing some of these assets.

1.    Drive scale with automation

Firms should look to embrace modern technology, including A.I. to automate the capture and analysis of borrower's financial information.  Progressive banks and financial institutions are already leveraging these technologies to reduce data entry time per borrower by as much as 90%.  In addition, many small business owners are becoming more comfortable with sharing their financial information that stored in cloud accounting platforms directly with their lender, again significantly reducing the data entry burden on the credit team.

Not only should firms consider automating the data entry process, but the analysis of borrower's financial statements, including applying cash flow calculations, forward looking projections, servicing and capacity assessments can all be largely automated too.

2.    Use technology to help you enter new markets

Some commercial asset finance lenders are looking to expand their offering to more specialised verticals, industries that require highly specialised machinery that can carry a limited secondary market.  As a consequence, these firms need to place more emphasis on analysing the strength of the underlying borrower, using specific charts of account, ratios and metrics that align to the type of industry they operate.  In this situation, a 'one-size-fits-all' approach can be problematic and lead lenders to seeking workarounds or less scalable solutions using spreadsheets or similar.

3.    Standardise and centralise your data

When you start to centralise your data, moving away from spreadsheets and disparate tools for analysing borrowers, you are able to drive deeper portfolio analytics.  Whether it’s benchmarking future borrowers against the existing portfolio, running stress-tests and what-if scenarios or looking towards advanced analytical models, the starting point will always be implementing technology to standardise and centralise your credit assessment data.

Preparing asset finance firms for growth

Without having the right credit assessment solutions in place to support their aspirations, many commercial asset finance firms may find themselves applying short-term workaround fixes which only leads to more problems down the track when needing to get a consolidated view of their portfolio performance.  

The firms who are more prepared are recognising the need to enhance their credit assessment capabilities to gear themselves up for the next phase of their growth.