Executive insights: Rethinking the underwriting funnel with cash flow data

Banks, fintechs and others in small business and consumer financing are beginning to rethink their process for determining risk and borrowers’ creditworthiness. Where credit bureau data has traditionally been the first line of qualification, lenders today are bringing cash flow analysis earlier in the funnel to start their process with a more accurate and real-time view of financial health.

To better understand the driving factors for this change, we talked with Ocrolus CEO Sam Bobley, COO Vik Dua and SVP of Growth David Snitkof. Here is what they had to say:

Sam: Cash flow is more predictive than credit in SMB funding

SMB funders have been leveraging cash flow analysis as the core component of underwriting for more than a decade. However, in the past, performing cash flow analysis was known to be expensive and time-consuming. Thus, it made sense for funders to run credit first to disqualify lower-quality leads, saving the more operationally intensive process of cash flow analysis for highly qualified borrowers.

Today, with AI-powered document automation and the rise of open banking, the speed and cost of performing cash flow analysis has become very similar to that of pulling credit – but cash flow analysis is proven to provide more valuable underwriting insights. Leading SMB funders have therefore implemented cash flow analysis as the first step in the underwriting funnel, leading to a more precise review of all borrowers that ultimately results in higher conversion rates and larger origination volumes.

Vik: Growing with a modern, cash-flow-first underwriting funnel

Between decreased credit losses, increased originations and a smoother customer experience, a cash flow-first approach in decision-making gives small business lenders the resources they need to grow their businesses. While application volume has increased across the board for small business lenders in the past year, our partners who have adopted cash flow analytics have grown significantly more. Between March and August 2024, partners who have taken advantage of Ocrolus’ cash flow analytics have increased their application volume by 40%, compared to just a 5.83% increase among those using only traditional analytics. 

By filtering out unqualified borrowers earlier and more efficiently, lenders can simplify the top of their underwriting funnel and minimize customer acquisition costs – giving their teams more time to focus on qualified applications.

David: Improving access to credit for small business owners

We talk a lot about the benefits of cash flow analysis for lenders – and for good reason. But, there’s also a significant benefit to borrowers. Based on findings from the latest edition of Ocrolus and OnDeck’s quarterly Small Business Cash Flow Report, access to credit continues to pose challenges for small business owners. The primary reason for not applying for bank funding is the hassle of paperwork, cited by 50% of respondents. Among those who did apply, one-third were denied.

With document automation and cash flow analysis, lenders can improve and streamline the process, but also identify qualified borrowers who may have been overlooked or denied based on credit bureau data alone. 

Trusted analytics for more confident lending decisions

At Ocrolus, we help financial service providers transform small business lending workflows with industry leading, AI-driven cash flow analytics. By transforming raw data into actionable insights, we help lenders understand the unique cash flow dynamics of their borrowers to manage risk and accelerate lending decisions. 

With best-in-class AI, proprietary algorithms and our collective experience with hundreds of lenders, we provide the most trusted analytics that empower teams to underwrite more loans with confidence.

To learn how you can grow your business while creating a better experience for borrowers through cash flow-first underwriting, book a demo today.

Key takeaways:

• New open banking regulations are expected to give lenders greater access to cash flow data, but documents remain an essential factor in gaining a complete picture of borrowers’ financial health.
• Cash flow-first decision making helps lenders decrease credit losses, increase originations and offer a smoother customer experience.
• With cash flow analysis earlier in the decision making process, borrowers benefit from a more streamlined process and greater access to capital for those without sufficient credit bureau data – all leading to an improved customer experience.