Smarter risk assessment is key to drive equitable financing for SMBs

As businesses across the nation continue to swim against COVID-19’s economic tsunami, we’re beginning to see a new trend emerge from companies who have fared well (or thrived): social impact financing. 

This new wave of corporate social responsibility (CSR) is a simple way to drive tangible support outcomes for struggling businesses, rather than recycle vanity-driven charity programs that only serve brand image. 

The targets for these initiatives? Mom-and-pop stores, small-scale, high-street businesses that power our communities. 

And for some, like the $100 million Facebook Receivables Program, which provides invoice financing of up to $25 million via technology platforms like Crowdz, diverse and minority-owned businesses are front and center. 

Profit neutral programs like this, which allow diverse business owners to access low cost receivable financing to address cash flow delays (Facebook’s rate is 0.5 percent, which is reinvested back into the program) are part of an emerging wave of enterprise-led social causes that aim to have a direct impact on economic growth on a community level. 

This collaboration between Facebook, Crowdz and Supplier Success is one example of how new age initiatives support visible outcomes such as paying employee wages, investing in inventory and driving new business growth- rather than funding overseas initiatives that eventually fall off the radar. 

It’s well documented that these CSR programs aren’t just niche plays anymore;  business bottom lines and brand growth now depend on them. But how do companies accurately determine how to allocate their resources in a way that is equitable and effective?

The answer may lie in smarter risk assessment scoring. 

Rethinking the credit score

The key to equitable, fair financing lies in our ability to accurately measure risk, I believe. However, to truly gain a holistic understanding of risk, we can’t simply rely on stock standard credit scores, or run of the mill applications, because unfortunately they are susceptible to inherent biases. 

Instead, funders should be provided with granular financial data from a variety of inputs, that update in real-time. It’s no longer enough to rely solely on an Equifax report to determine whether you should lend to a company in need.  

Plus, by implementing initiatives like supply chain finance as a service, or SCFaaS, corporations and other large enterprises have the opportunity to provide a lower-risk cashflow lifeline to smaller businesses that may be otherwise overlooked and excluded by traditional lenders.

Why? Receivables financing works on the premise that you’re fast tracking money that you’re already owed.  

When provided through the right platforms, enterprises can offer a capital facility with interest rates lower than banks, less the red tape, and bureaucratic barriers, rather than low impact, fluffy CSR projects. 

If we want to really get serious about helping businesses back on their feet, we need to reevaluate how we decide who has the right to access capital. I believe smarter Sustainability, Risk and Financial-based risk assessment models (or SuRF Scores as we call them at Crowdz) are the key to equitable finance.