The First Cash Flow Underwriting System for SMB Lending Has Arrived

Financial technology company Slope has launched a new program to help lenders assess the creditworthiness of small and medium-sized businesses (SMBs). The company calls its program SlopeScore and describes the product as the first cash flow underwriting system a company has built with SMBs in mind.

The tool may be just what credit card issuers have been looking for to help them better evaluate small and medium-sized businesses when it comes to making decisions on extending them credit.

Lenders can run into roadblocks when trying to underwrite smaller businesses in part because the financials for one company can look wildly different from those of another, even if the two businesses are comparable in size and operate in the same sector. 

And credit card issuers may not have the resources they need to adjust their underwriting practices for each small business that comes to them for credit.

“Banks, for the most part, lack access to the deep industry expertise and proprietary data necessary to meaningfully improve the accuracy of their underwriting for specific small business customer segments,” Fintech Takes wrote in a recent report.

We caught up with Lawrence Lin Murata, Co-Founder and CEO at Slope, to learn more about the company’s new tool and how it can assist lenders.

Lin Murata told us that, while many companies that issue credit cards can turn to FICO scores to inform their underwriting for consumers, they lack a reliable option to leverage when analyzing businesses that come through their doors seeking credit.

Traditional approaches to underwriting may not help lenders evaluate SMBs whose financial backgrounds can vary significantly from one company to the next.

One reason traditional consumer underwriting can be effective is that many people only have one or, at most, a handful of income sources. 

And Lin Murata told us that lenders can get a more complete picture of where a consumer stands financially because most people don’t have many large expenses outside of payments they owe for their mortgage or rent.

While a lender may not have trouble figuring out a household’s cash flow, it can be a much different story when they examine SMBs.

“For businesses, the cash flow is just many orders of magnitude more complex,” Lin Murata explained. “And companies can have different business models. Some will receive cash or payments in checks, and others might be in eCommerce where all of their sales happen online.”

SlopeScore relies on a large language model to power its categorization engine that can take raw transaction data and turn it into information lenders can use to make more informed decisions in their lending practices. 

Lin Murata said the company built a lot of guardrails around the language learning model to normalize and verify the outputs.

The program performs sophisticated data analysis tasks. But Lin Murata told us that its approach can be broken down into layers, which can help a credit card issuer’s compliance partners reach a better understanding of exactly how the system works.

Though Slope designed the program for lenders, it also stands to benefit SMBs that have become frustrated when trying to secure credit from banks.

“We see every single bank transaction coming into a business and going out of a business, and we’re categorizing it all,” Lin Murata told us. “So even if that company doesn’t have its own accounting department, it’s like we’re reconstructing a complete financial picture of them from scratch. That leads us to a view of the cash flow and overall health of a business.”

SlopeScore can also help businesses receive better terms on the credit cards a lender approves them for. 

Many SMBs are in the market for credit cards that offer them higher credit limits and the ability to earn better rewards.

A recent report reveals that small and medium-sized businesses favor business cards that offer higher credit limits and access to better perks.

However, Lin Murata told us that not only do many small businesses struggle to gain access to credit, when they do, it’s often at terms he describes as predatory.

And the path for SMBs to get better terms on financing may be a rocky one when they can’t access the rates and limits on lending solutions that would put them in a better position to build a strong credit history.

Slope has been testing its new solution with some of the company’s partners, and the initial results have been encouraging.

A leading bank in the U.S. recently used SlopeScore to unlock new opportunities to boost revenue.

“One of our partners has completed a very successful pilot where they saw a 14% increase in approval rates,” Lin Murata told us. “That resulted in almost $1 billion in originations that they wouldn’t have found by just looking at their internal models or traditional scores.”