Alternative lending is a financial service that lives and dies with data.
Without an understanding of what’s really happening in your business, you take the risk of making decisions based on assumptions. An alternative lending business that thrives in this uncertain market is one that can make accurate predictions as often as possible using strong data analytics.
Data analytics is the process of analyzing and displaying large amounts of data in order to make informed decisions more easily. In the alternative lending industry, these could be decisions about whether or not to underwrite a loan application, what kinds of offers might be best suited for a particular customer, what kinds of collection efforts are most likely to succeed, and more.
With the proper use of data analytics, your small lending business can operate more efficiently and with more precision than if you were relying only on manual inputs and legacy loan management systems.
Today, we are going to take a look at some of the benefits of robust data analytics for alternative lenders, including faster loan processing, superior customer service, and (perhaps most important of all) more accurate risk assessments.
The Benefits of Comprehensive Data Analytics
Comprehensive data analytics helps small business lenders improve nearly every aspect of their lending workflows. Armed with not only extensive information, but also a clear picture of what that information means, alternative lenders stand to receive a number of benefits, including:
1. A Clear Understanding of Customer Financial Health
Credit scores are useful in determining a customer’s (or potential customer’s) financial health, but they don’t tell the entire story of their creditworthiness. To get a comprehensive view, an alternative lender needs to take into account a wide variety of factors, including an applicant’s income, potential income, available assets, payment history, time in business, and more.
Some lenders even review publicly available social media data to build algorithms that factor in every possible risk. Advanced analytics can give you much more thorough and complete data than just a credit score, and can help you quickly and easily drive decisions.
2. Real-Time, Informed Decision Making
Without advanced reporting tools, locating and comparing data can be a time-consuming chore. Comprehensive data analytics can take much of that work off of your plate. Being able to pull comprehensive, up-to-date information at any time means that information can be on hand and easily compared with the click of a button. Automated systems can even use that data to make decisions for you based on parameters that you define. Set your thresholds, flag your outliers, and make decisions based on real-time, up-to-the-minute data.
3. Improved Customer Satisfaction
Each business you work with has different needs and different assets. Comparing data focused on past successes can allow you to offer the perfect deal for both you and your customer. What’s more, data analytics lets you approve qualifying applicants more quickly, so borrowers who need money now aren’t left waiting for results.
4. Better Fraud Detection
With increasing regulatory obligations, including demanding Know Your Customer (KYC) and Anti-Money Laundering (AML) programs, it has never been more critical to incorporate real-time data into your loan management process. Risk management isn’t sexy, but it is necessary. Evaluate your data for unusual occurrences and pull in external data resources, such as Thomson Reuters CLEAR to extinguish risk early and effectively.
KPIs Every Alternative Lender Should Track
Data reporting can be applied to more than just your customers—you can also leverage data reporting for your own business. With comprehensive data reporting, you can discover what really works and where you need to evaluate your business processes. By tracking important KPIs like those listed below, you’ll get a much deeper understanding of what needs to be done.
In order to make informed decisions about your business, you should be tracking data points such as:
- Time From Application to Funding
Getting applications approved quickly means you can get to work on the next deal that much sooner. An application waiting to be reviewed isn’t making you any money. Not only will faster processing times boost your bottom line, but they will have a dramatic impact on customer satisfaction. This data point can also be used to identify potential workflow bottlenecks and prevent any unnecessary delays.
- Collection Ratios by Vintage
Sorting the collection ratios of your customers by vintage gives you a better view of your business’s trajectory than simply looking at the current state of things. Is your risk analysis improving? Is it slipping? This information will help you decide whether you need to review how you approve your applicants.
- Conversion Ratios by Source
Viewing the conversation ratios by the source of the lead gives you a definitive picture with respect to which of your outreach efforts has actually resulted in new business. Armed with this information, you’ll have a better idea of which avenues are actually worth your time and money, allowing you to generate more business with fewer resources.
- Underwriting, Broken Down by Every Single Data Source
Find out which leads result in successful accounts and get a clearer image of how to predict who you should be underwriting by tracking every point of data you can about your underwritten accounts. These data points are especially important:
- Time in Business
- Term
- SIC Code
- Monthly/Yearly Gross Revenue
Tracking this information will let you make faster and more accurate underwriting decisions, so you can quickly move on to the next potential customer.
These four important data points will provide you with an idea of how your alternative lending business is doing and where improvements can be made, but there are many more you can use to get an even more complete view, such as your revenues, gross margin, assets, and liabilities. The more data you can track, the better decisions you’ll be able to make.
While you may be able to track these statistics manually, doing so is extremely costly and time-consuming. The industry is migrating towards the use of robust alternative lending platforms (such as Onyx IQ) that pull real-time data from third-party sources and normalize that information with existing real-time customer data. This eliminates the need to manually manipulate disparate data sources to deliver results.
Onyx IQ: Data-Driven Small Business Lending
Remember, data is one of the most powerful tools available for an alternative lender. By collecting and analyzing information relating to both your customers and your business, you can make more accurate and informed decisions about what direction to take your business. You can’t afford to leave your business up to hunches and guesses—arm yourself with comprehensive data analytics so you can make the best possible choices.
Onyx IQ is an alternative lending platform that, among many other powerful features, lets you pull institutional-grade reports on the data you really need, giving you a complete view of your business and all the information you need to make informed decisions. You can pull comprehensive reports on many aspects of your business, such as static pool reports, raw data reports, syndication reports, and more.
Accelerate your alternative lending business with advanced analytics powered by Onyx IQ. Schedule a demo with one of our industry professionals to see how our clients use real-time data at every step of the process and leverage the robust reporting suite to maximize data access and drive real results. Visit www.onyxiq.com or send questions to info@onyxiq.com.
