How to get commercial affordability right
For commercial lenders, assessing affordability is more challenging than ever due to soaring inflation, rising interest rates, high energy costs and a range of other factors.
To ensure that business customers are resilient in terms of their ability to pay, lenders need a ‘full picture’ view of affordability based on comprehensive data, advanced analytics, and forward-looking macroeconomic forecasts.
Assessing the affordability of facilities for commercial customers has always been a significant challenge with multiple, complex factors to consider. As well as accurately assessing a business customer’s turnover, costs, and existing debt obligations, lenders need a clear view of other factors such as asset depreciation, the drawing down of dividends by company directors, and more.
Unfortunately for lenders, though, the current inflationary climate – and in particular factors such as high and rising energy prices and low consumer confidence – are making affordability even more difficult to calculate. Not only that but unusually volatile ‘cost-of-living’ and ‘cost of doing business’ factors mean that what’s affordable for commercial customers today may test their resilience and ability to pay over the entire lifetime of a facility.
With this multi-dimensional complexity affecting affordability for businesses of all sizes and all sectors, a highly comprehensive approach is needed to ensure the accuracy and efficacy of credit decisions. This should be based on a ‘full picture’ view of a business’s financial status and resilience based on a granular analysis of all known affordability vectors.
Further reading on commercial affordability
Commercial affordability for financial providers