Meet the Credit Strategy team, who assess the risk and affordability of businesses

The Credit Strategy team is key to our loan process, helping to assess the risk of a business, how much they can afford to borrow and what interest rate we can offer them. Here, our Chief Credit Officer Ajmal Raja tells us a little bit about what his team does, and why they’re so important to getting your clients the funding they need. 

Tell us a bit about you and your team

I’m currently the Chief Credit Officer at Funding Circle and I have been overlooking our lending strategy for the last four years now. In terms of my team, we have the Credit Assessment team on one side who deal with applications through the funnel. Then we have 3 other analytical teams who focus on our products – for example our term loans, which includes the short-term loans we’ve just launched to enhance our offering. 

The teams each manage the day-to-day credit strategy for these products, which includes deciding which businesses we should say yes to, how much we should lend to them and their affordability criteria, etc, which feeds into our market-leading technology. With lending being the heart of our business, the credit strategy teams work very closely with all functions especially the underwriting and tech teams. 

How do you go about making a pricing or risk model? 

At any lending company, you have to understand the intrinsic risk of the population you’re lending to. 

There are so many different factors to take into consideration, which is why we build risk models. They are faster and don’t have the biases that can creep in if you just have people assessing applications. They also have the added benefit of being able to consider thousands or even millions of factors simultaneously to truly understand the business – ultimately allowing us to say yes to more businesses as a result. Funding Circle has issued more than 100,000+ loans over the years, so we have huge data sets that can help us look at many different data points, and understand all of the factors we need to assess. As this is done in a systematic way, we can then back test, continually improve and adapt the model as we go. 

We have one team who actually builds the model, as well as another team who validates it from a mathematical standpoint. Even outside of this we recognise that every business is unique in their own way, so we typically zoom into the outputs with our credit assessment team to make sure the decision making is robust. The process of building it is really strong. 

What types of data feed into the model, aside from things like loan book performance? 

We’ll look at the details around the business itself, like how the business is doing and the lending it’s taken before, and the business’ filed accounts. However, it’s also really important to have a recent assessment of the business, as their accounts can sometimes reflect an outdated view, so we’ll look at banking information, too, to get more of an insight.

How do you assess affordability? 

There’s not really a ‘one size fits all’ approach, as different businesses are at different life stages. If they’re earlier on in trading, you won’t be expecting them to make as much profit, but there might be a good trajectory for the future. In short it’s largely a mix of profit and turnover. . 

What does a typical Funding Circle deal look like? 

The typical borrower we lend to is a company that’s been around for approximately 8-11 years, with roughly 8 employees and an average revenue of around £1 million – but this is an average. 

How can brokers recognise customers that would receive our enhanced short-term loan offering?

There’s really two distinct segments in my eyes. The first segment is the businesses who sit outside of the credit acceptance criteria for our standard 6 year term loan. Their individual characteristics can vary quite a bit from business to business, however they would typically be the businesses that are supported by alternative lenders who specialise in short term finance.

Outside of this, the product also allows us to start lending to businesses that have only been trading for one to two years. 

Are we having success with certain segments of the market? 

Our decision making is unique because we don’t consider businesses from a binary view. We look at the holistic picture, so we don’t filter whole industries like other lenders may do.

For example, during Covid-19, the natural answer was to restrict any lending to leisure and hospitality given the restrictions in place, but our approach was more nuanced to understand which businesses had strong models – for example if a restaurant had shifted their services to takeaway. Our approach in our credit strategy was to look at these key differences, and that’s how we helped so many businesses. 

What are your team’s goals for the future? 

My number 1 goal this year would be to stay on top of the challenges of the environment that we’re in, and to make sure that our credit strategy doesn’t lose sight of these times. We can’t just look at the details that tell us it’s too risky. It’s a tough time for SMEs, and I want us to strengthen our credit assessment process so we can better understand which businesses can get through this phase, and need the funding to fly through. 

Being good enough to continue to distinguish the strongest businesses, even in a world where the economy is slowing down, is where I want us to be. 

If you have any questions about how the Credit Strategy team can help you, feel free to contact them on broker@fundingcircle.com or 0203 667 2208.