Why measuring commercial credit risk for SMEs has been so challenging - and why Evenly is changing that.

THE CHALLENGES OF SME CREDIT RISK ASSESSMENT

Measuring commercial credit risk for small and medium-sized enterprises (SMEs) can be a challenging task. Unlike large, established businesses, SMEs often have limited financial data and a shorter track record, which can make it difficult to accurately assess their creditworthiness - whether that credit is something like a loan or something as simple as issuing an invoice on terms.

One of the main challenges of measuring commercial credit risk for SMEs is the lack of historical data. Many SMEs are relatively new businesses, and they may not have a long track record of borrowing and repaying loans. This can make it difficult for lenders to assess the risk that an SME will be unable to pay back a loan.

Another challenge of measuring commercial credit risk for SMEs is the lack of standardisation. Unlike large businesses, which often have well-established financial reporting processes and systems in place, SMEs may not have the same level of financial sophistication. This can make it difficult for lenders to accurately compare the financial health of different SMEs and assess their credit risk.

In addition, the unique characteristics of each SME can make it difficult to apply general risk models and algorithms. SMEs often operate in niche markets and have unique business models, which can make it difficult to accurately assess their credit risk using standard risk assessment tools.

WHY IT MATTERS

Despite these challenges, it is important for lenders or suppliers to carefully measure the commercial credit risk of SMEs. By doing so, they can ensure that they are extending credit to businesses that are capable of repaying their loans or invoices, while also providing access to the financial resources that SMEs need to grow and succeed.

THE GOOD NEWS

It's for these reasons that Evenly's focus on SME credit risk is so critical and why our new approach to understanding SME credit risk is so needed. By using a combination of traditional and alternative data sets, then seeking to predict how businesses will behave, we overcome many of the traditional challenges of assessing SME credit risk while also increasing accuracy in ways that matter.