The process begins with a precise approach consisting of strict criteria that filter applications before evaluating them more deeply. These criteria are based on historical data and identify “early signals” of high-risk borrowers. For example, if a business is less than a year old, operates in a risky sector, or has a very low credit score, the system may automatically collapse.
Lenders use this approach to save money. Loan applications are expensive to process “out there,” especially for low-margin small business loans. Automating early rejections allows lenders to focus resources on applications that are more likely to be approved.
However, the rules vary from lender to lender. One may require two years of work, while the other only accepts one-year businesses. This creates opportunities for rejected applicants to try their hands elsewhere and for lenders to cross-reference clients.
Source: Ferra
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