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How Lenders Are Using Big Data To Predict Your Company's Future

Written by Ken Gaebler
Published: 11/13/2013

Big data is changing the way alternative lenders evaluate the creditworthiness of small business borrowers and challenging the traditional lending framework.

Big data is the aggregation of massive amounts of data sources (i.e. transactions, online behaviors, purchase histories, etc.) into insights that businesses can use for a range of activities, including improvements in sales, marketing and the customer experience.

How Lenders Use Big Data

And even fewer have considered how big data can be used as a lending to forecast the success of their companies. determine their ability to fund or finance their companies.

But according to a recent IT Business Edge article, many lenders are leveraging big data for another purpose--using data insights to gauge how creditworthy prospective buyers are and to determine how likely it is that they will be able to repay their loans on schedule. Through the use of predictive analytics and other tools, lenders that rely on big data are able to offer borrowers more flexible, non-traditional financing options.

In general, alternative lenders are more open to the use of big data in lending decisions than large, traditional banks. Most commercial banks are hesitant to finance startups because they base lending decisions on past credit and earnings histories. Alternative lenders, on the other hand, are more likely to consider the company's past, present and future states--which makes big data a natural fit with their lending routines.

"Banks do not give loans to new companies, and they're very selective even with established companies, which is why entrepreneurs almost always have to use other lenders," says Alex Genadinik, founder of small business app provider, Problemio.

The shift toward big data in lending decisions will likely become more problematic for traditional lenders going forward. According to industry experts, the traditional banking model's overreliance of credit reporting, scoring and backward looking criteria will make traditional lenders even less appealing to small business borrowers, leading many entrepreneurs to explore alternative lending and even crowd funding tips as a way to secure capital for their companies.

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