A New Perspective on
Small Businesses Lending
How financial inclusion in SMB lending canbe achieved using alternative credit data

Traditional credit data may not give lenders
the full picture of creditworthiness
89% of lenders leverage alternative credit data
to evaluate small business applicants.1

Small businesses present unique opportunities andchallenges for financial institutions. Lenders looking to
expand their small business lending portfolio often havetrouble finding reliable information to more accurately
assess SMB credit risk. Alternative data can close theinformation gap and give lenders clearer insight into
small business creditworthiness.
Survey results from the 2023 LexisNexis® Risk Solutions
Alternative Credit Data Impact Report revealed a numberof key insights into the many ways lenders are utilizing
alternative data to identify and assess new and/or thin fileorganizations as well as refine segmentation among moreestablished, high-performing businesses.
Understanding how alternative data can be leveraged
to target and evaluate small businesses can help lenders
approve more newly-created businesses, drive portfolio
growth and deliver exceptional customer experiences.

2

New business creation has slowed (-7% from 2021) — will slowing
creation rates impact small business lending portfolio growth?135.3%

In 2021, business creation soared as entrepreneurs took advantage of arebounding economy and low interest rates. Now, with rising interest rates,
inflation and growing economic uncertainty, conditions for new businesscreation have become harder to navigate.

of small businesses
have a credit history3

Still, small businesses comprise 99.9% of all U.S. business — representingtremendous opportunity for lenders, but also significant potential risk.2
Newer businesses often have little to no trade history or credit footprint— with many failing shortly after launch or never coming to fruition after
the initial conception phase.

Evaluating small businesses with traditional data
can be murky — lenders who want to capitalize on
these opportunities need a new perspective on risk.

78%

of small business owners use theirown funds to launch their businesses2!

1 in 2

small businesses with credit
history have thin files3

3

Lenders face significant challenges in assessing
risk for nascent small businesses
Alternative data can help shed some light on the viabilityof newly created businesses.

While it is true that new business formations are on the rise,
we are finding that many of these new businesses never growto be active businesses. Many entrepreneurs take initial steps toform an entity but for any number of reasons never follow through.
Alternative data can be an important tool to help delineate
preforming young businesses with the potential for growthfrom businesses that fizzle out shortly after creation.
Though business creation has slowed, credit utilizationis on the rise, with a resulting increase in risk.

Over the past year, businesses have been starting to show
signs of stress as overall utilization and tradeline delinquencies
are on the rise. Businesses considered highly leveraged
with a revolving tradeline at 75% utilization increased 19%.3

The challenge for lenders now is how to continue
to identify potential new small businesses andopportunities to grow with their existing small
business customers amidst a shifting risk landscape.

4Lenders are turning to alternative credit data
to gain additional insights to fuel portfolio growth
82% of responding lenders leverage alternative credit dataon small business applicants to achieve credit portfolio growth.1

Identifying new growth opportunities starts with the ability
to see and evaluate younger small businesses. Financial
institutions that focus on small business lending ranked
reaching previously underserved markets as a top advantage
of using alternative data for both marketing (40%) andcredit risk assessment (35%). In addition, 33% of respondents
ranked better risk mitigation as a top advantage in credit risk
assessment specifically.1
By blending alternative data with traditional credit data
and business-authorized representative insights, lenders
gain an increased ability to score businesses and identify
risk, leading to more confident risk decisions.

Advantages of using alternative data (% ranked as top advantage)
Marketing/SMB(N = 50)

Reach previously
underserved market

40%

Better mitigate risk with a more
holistic credit risk assessment

35%

28%

Balance speed of approvalagainst customer friction
Deliver optimized offers for
credit and services for customers

Credit/SMB(N = 48)

22%

10%

33%

15%

17%

These results support the finding that as alternative data becomes
best practice for financial inclusion, lenders begin looking for otheruse cases where non-traditional credit indicators can apply. Whilefinancial inclusion is the top ranked advantage when looking atmarketing, that gap narrows as lenders move into risk assessment.

5Adoption of alternative credit data
isn’t just for credit invisible applicants
57% of lenders are using alternative data to evaluate thecredit risk of 75% or more of their small business applications.1

Across sectors, frequency of alternative data usage varies significantly
when assessing new small business accounts. Banks (37%) are more
likely to utilize alternative data to assess all new accounts thanany other financial sector — the next highest being credit unionsat 18%. 90% of Tier 1 banks (banks with portfolios exceeding $1B)
use alternative data to help assess all SMB applications.

By leveraging alternative credit data insights across applicants,
lenders can continue to refine risk strategies and manage
overall portfolio risk and profitability.

Frequency of using alternative credit data1Bank (N=51)

Overall (N=99)
All applications

27%

More than 75% but less than 100%30%

More than 25% but less than 50%
Fewer than 25%

37%

8%
2%

20%

23%

6%

12%
Bank Tiers• 1 = 90%
• 2 = 33%
• 3 = 19%

16%
47%

22%

4%

Non-Bank Lender (N=25)

18%

31%

33%

More than 50% but less than 75%

Credit Union (N=17)

0%

60%
4%
0%

6Alternative data is a powerful tool for segmenting risk.

Alternative data can help give lenders a more detailed
picture of business creditworthiness, allowing themto refine their risk strategies, enhance segmentation
efforts, and offer more attractive and profitableconditions. 52% of respondents focused on marketingcited risk mitigation as a top business driver
for adopting alternative credit data.
Completing the picture of business creditworthinessenables SMB lenders to better understand potential
risk and more effectively segment customers. Lenders
can then leverage these insights to help optimize lending
terms — empowering them to mitigate attritionand drive profitable growth.

52%

Top drivers for alternative data adoption
Marketing/SMB(N = 50)

Improved pricing strategies

52%

44%

Financial inclusion

56%

Risk mitigation

52%

Stay competitivein the market
Risk separation

52%
35%
44%

42%

50%

32%

Being ahead of thecompetition

24%

Market expansion

28%

Automated decisions

Credit/SMB(N = 48)

22%

15%
27%
23%

of respondents focused on marketingcited risk mitigation as a top businessdriver for adopting alternative credit data.

7Take a proactive approach to portfolio
management with alternative credit data

55% of lenders leverage alternative credit data for credit
portfolio management of their small business customers.1

Businesses with a delinquency over 90+ days past due
increased 26% in the last year.6 As risk in existing debt
portfolios continues to shift, lenders can leverage enhanced
insights and take a proactive approach to understanding
which small business customers are increasing or
decreasing in risk — then develop targeted strategies
to engage them to maximize recovery.

8

Improve risk evaluation of over 98% of small business applicantswith small business credit solutions from LexisNexis Risk Solutions.

Help small businesses thrive in a rapidly changing economy andgrow your business lending portfolio with confidence by identifying
opportunity where others may only see risk. Connect business andauthorized representative insights to improve credit risk assessmentand extend more competitive offers so you can grow with yoursmall business customers.

Ready to transform your small business
lending portfolio?
Learn more:risk.lexisnexis.com/financial-services/credit-risk-assessment/small-and-midsized-business-credit-risk

LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve
decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare
and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of informationbased analytics and decision tools for professional and business customers. For more information, please visit www.risk.lexisnexis.com, and www.relx.com.
This document is for educational purposes only and does not guarantee the functionality or features of LexisNexis Risk Solutions products
identified. LexisNexis Risk Solutions does not warrant this document is complete or error-free.
Any LexisNexis Risk Solutions services referenced herein are not provided by “consumer reporting agencies,” as that term is defined in theFair Credit Reporting Act (15 U.S.C. § 1681, et seq.) (“FCRA”) and do not constitute “consumer reports,” as that term is defined in the FCRA.
Accordingly, any LexisNexis Risk Solutions services referenced herein may not be used in whole or in part as a factor in determining eligibility
for credit, insurance, employment or another purpose in connection with which a consumer report may be used under the FCRA.
LexisNexis and the Knowledge Burst logo are registered trademarks of RELX Inc. Copyright © 2023 LexisNexis® Risk Solutions.
NXR16037-00-0523-EN-US

Sources:
1. LexisNexis Risk Solutions 2023 Alternative Credit Data Impact Report
2. The State of Small Business in America | U.S. Chamber of Commerce (uschamber.com)
3. LexisNexis Risk Solutions, InfoHub February 2023 Report