5 Essential Data for Alternative Funders: Mitigating Risk in Business Financing

Alternative financing for business owners can be risky, and the underwriting process should be thorough to mitigate this risk.

When assessing alternative financing options, lenders should consider various factors to evaluate the creditworthiness of the borrower.

This includes examining the borrower's personal and business credit history, financial records, repayment ability, and the presence of collateral.

Additionally, lenders should assess the borrower's industry volatility, payment history, and any past defaults or tax liens.

By conducting a comprehensive underwriting process that takes into account these factors, lenders can better gauge the risk associated with providing alternative financing to business owners and make informed decisions to protect their investments

Here are the 5 key types of data that compliance and risk officers should gather during the underwriting process

Data Provenance and Vendor Compliance:

- Thoroughly vet data vendors and conduct due diligence on data sources

- Ensure data was collected legally and ethically, without privacy violations or insider trading concerns

- Verify data provenance to mitigate legal and reputational risks

Personal and Business Credit History:

- Examine borrower's personal and business credit history

- Assess creditworthiness and repayment ability

- Evaluate risk profile and likelihood of default or delinquency

Financial Records and Repayment Ability:

- Review borrower's financial statements, cash flow, and other financial data

- Determine borrower's capacity to repay the financing

- Identify potential red flags

Industry Volatility and Payment History:

- Assess volatility and risk factors associated with borrower's industry

- Analyze borrower's past payment history

- Gauge reliability and consistency of financial obligations

Presence of Collateral:

- Evaluate availability and value of collateral provided by borrower

- Consider collateral as risk mitigation in case of default

Thorough analysis of this data enables informed decision-making, protects the alternative funder's interests, and ensures a sound underwriting process.