ATLANTA, Nov. 17, 2016 /PRNewswire/ -- Small Business financial inclusion, which hinges on lending practices established by financial institutions, is important to the long-term economic growth of our country. When small businesses have access to the financial system, they can secure credit that enables them to expand their company, innovate new products, and create more jobs; yet, the financial system many times excludes countless small businesses partly because they have no credit history or a very thin credit history file. Lenders understandably tend to shy away because the lack of financial insights about these companies could mean heightened risk. The irony is that most small businesses that fall into this category are actually very good credit candidates.
Testing has shown that a small business' traditional credit payment history is very predictive of its future credit risk. However, many small businesses do not have a credit payment history, so lenders that only use traditional means to assess risk don't have the insight necessary to bring these companies into the financial system. Small businesses understand the important role credit plays in growing their business and lenders understand the value and stability small businesses bring to their portfolios; yet, there is a chasm. Ben Cutler, senior director, small business credit risk decisioning, LexisNexis Risk Solutions, sat down with us recently to discuss how this chasm can be closed so that small businesses and lenders benefit. Cutler answered the four most pressing questions lenders ask when it comes to including more small businesses in the financial system.