Using Data to open a window into the 'M's of SMEs
Our expertise in SME lending is the product of a detailed manual underwriting process combined with market-leading data. Because of our sole focus on mid-sized SMEs (the “M”s) we have continually invested in making sure we have the best data available to inform our decision making.
Our credit risk model, called PRISM, uses multiple data sources including accounts filed at Companies House. PRISM models more than 2 billion data points covering every mid-sized SME that has traded since 2007 – around 200 metrics on over 750,000 businesses across 14 years.
In October 2021 we completed our third major upgrade to PRISM. The upgrade has improved the accuracy of the model to predict future insolvencies and includes a new filter called SPECTRUM which analyses additional real time data. This is particularly useful given how different sectors have been affected in different ways as a result of the Covid pandemic. These enhancements mean we can continue to give a quick and highly accurate indication of our credit appetite early in the funding process despite the additional uncertainty caused by the pandemic.
Read more about other developments at ThinCats in 2021
PRISM provides a comprehensive and instantaneous view on the financial strength of nearly 450,000 mid-sized businesses. Because the model is dynamic, it allows us to track how businesses perform over time. We can also compare an individual business’s performance against other similar businesses across multiple risk, borrowing and growth metrics. We are supplementing this "big data" with micro trend analysis of each of our borrowers and, in time, adding predictors of business performance.
We plan to share the insights gained from this data analysis with our borrowers to help them improve their performance. If we choose to analyse the data as a whole, rather than at an individual business level, we can look at the overall financial health of mid-sized SMEs and explore how different sectors or regions are performing.
In early 2021 we analysed the insolvency rates of businesses during 2020 and found that despite the economic blow dealt by the pandemic, overall insolvency rates actually fell during the year, testament to the business support measures put in place by the Government and the disproportionate impact of the pandemic on sectors reliant on customer footfall such as leisure, entertainment, and consumer services.
We plan to repeat this analysis using 2021 insolvency data to see how the re-opening of the economy, the winding down of some Government support initiatives and the emergence of higher costs and other supply chain issues are impacting the financial health of mid-sized SMEs across the UK.
