Response to discussion Paper and Call for Evidence on SMEs and the SME Supporting Factor

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Q7: Are other aspects relevant in your assessment of the creditworthiness/riskiness of potential SME borrowers? Yes/No. If yes, please provide a list of those aspects and explain how you measure SME riskiness.

A very important element in assessing the creditworthiness of potential SME borrowers is the use of credit scores. Credit scores combine a wide range of information on SMEs relevant for the assessment of their creditworthiness, including the data needed for evaluating such aspects as profitability, leverage, activity, liquidity and coverage. They can predict SMEs' creditworthiness very precisely and are widely used by lenders as part of their own risk assessment systems during their lending decisions.

In practice credit scores play a very important role in lenders' assessment of SME riskiness, as often it is very difficult and costly for lenders to gain accurate risk insights on SME borrowers, because data such as financial ratios on liquidity, profitability and other aspects typically used for assessment of the riskiness of companies is simply not available for SMEs (especially for smaller companies).

While specific set of data used by credit bureaus for developing their credit score may vary slightly depending on the particular scoring model, the following data are typically incorporated in credit scores, used by lenders in assessing SMEs' creditworthiness:
• Basic company information (name, legal form, address, number of employees, year of foundation, industry sector, etc.)
• Delinquency rate
• Mix of credit typologies
• Ratio of outstanding vs. granted debt
• Nature of debt (commercial, financial)
• Credit mobility (the ratio of new versus closed credit lines)
• Percentage of the granted amount covered by collaterals
• Typology of collaterals
• Consumer information about SME stakeholders (e.g. directors, owners)
• Negative information such as insolvency proceedings, data of collecting agencies
• Information on existing accounts (e.g. at banks, telecommunication providers)
• Information on payment and liquidity of customers and business partners
• Information on the payment behavior: requested, completed and unfulfilled credit transactions with credit risk
• Liens
• Usage: the number, type, duration and scope of credit transactions with credit risk
• Length of credit history: possible indication of experience in dealing with financial obligations
• Macro-economic information (economic situation/seasonal influences/market situation in the industry, unemployment rate, interest rate environment, oil price, import prices, etc).

In conclusion, it can be stated that credit scores based on the above information serve as a highly predictive and cost-effective tool for assessment of SME riskiness. They are widely used by lenders and enable them to accurately estimate the credit risk for their SME credit portfolios. As a result, they enable lenders to provide SMEs with credit that otherwise would not have been available due to the lack of information needed to evaluate traditional riskiness factors, including profitability, leverage, activity, liquidity and coverage.

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Name of organisation

ACCIS (Association of Consumer Credit Information Suppliers)