A new way to get a credit score for your small or medium business: introducing Railz Score
Officially announced during our Finovate demo, Railz has launched a new product feature — our very own Credit Score! On our mission to build the largest financial data network, we have released our credit score feature. The Railz Credit Score is a proprietary and brand new way to provide a credit rating to small and medium enterprises that eliminates the reliance on personal credit so businesses can get the funding they need.
What is a traditional credit score, such as FICO?
A traditional credit score is what lenders and creditors rely on to make financing decisions. Your credit score is a number between 300 and 850 that indicates a consumer’s creditworthiness, with a higher score being ideal to financial lenders. A credit score is based on credit history of the individual, such as the number of open bank accounts, total levels of debt, repayment history, and similar factors of financial history.
FICO, founded in 1956, is a data analytics company focused on credit scoring services. FICO is a type of traditional credit scoring. The FICO Score is the formula that banks, creditors, and lenders rely on to evaluate whether or not to provide financing, loans, or credits to individuals and businesses.
How does a traditional credit score impact businesses today?
Small and medium enterprises (SMEs) trying to access to financial products, such as loans, are required to submit FICO scores of the individual business owners. The individual owner of a business is not often a great reflection of a business’s financial health. In addition, the existing business credit scores have not evolved in the past 10 years and are very high-level (related to the industry) and not specific to a business.
Currently, 29% of small businesses fail because they run out of capital. Unfortunately, 14% of small businesses only received a portion of their requested funds after applying for a loan and 9% received no financing at all after submitting an application.
Since a traditional credit score doesn’t take into account assets, accounts receivable, vendor risk, or expenses it only offers a sliver of information and is centred around the individual, rather than the business itself. If you always pay your supplier bills and payroll on time, which can account for big chunk of business expenses, wouldn’t it stand to reason you’d also pay your business’s credit line? As part of our plan to support the future of finance, we needed to provide our financial institutions and fintechs the ability to provide a modern credit score to their SMEs.
Introducing Railz credit score for businesses
At Railz, we believe traditional credit scores have a very limited view of the overall financial health, purchasing power, and payment histories of a business. 36% of small businesses that were denied at least some of the funding they requested were denied because of their credit score.
As of today, our first version of our credit scoring and credit rating is live! It provides a modern way for small and medium enterprises to get an appropriate and accurate credit score to help them get the financial product they need to support their business.
How does the Railz credit score work?
Our first iteration of the Railz credit score is based on proprietary models that rely on a business’s financial statements to calculate the probability of default at a point of time and outputs a credit score and rating based on this information.
Through our two new API endpoints, credit score and credit rating, our financial institutions (FIs) and financial technology (fintech) companies will be able to access the credit score and rating for their SME customers. As well, our FIs and fintechs will be able to access equivalent SME ratings based on the big 4 US credit agencies, which is usually only available to public companies and larger organizations:
How will the Railz Credit Score impact financial institutions, such as banks and credit lenders?
Financial institutions can embed our Railz credit score into their models and decision engine to get additional parameters on their SMEs based on alternative financial date.
How will the Railz Credit Score impact financial technology companies, such as neobanks and alternative lenders?
Fintech companies with no in-house capabilities to calculate credit scores or build decision engines can now utilize the the Railz credit score to build their credit models.
What’s next for the Railz Credit Score?
Railz Score will be publicly available mid-October. On our product roadmap, we plan to expand our credit score to take advantage of additional financial data points such as invoices, bills and vendor or custom risk all made possible with our expanding financial data network. If you want to get involved in our product roadmap decisions to trial products in beta, join the Railz Slack community!
Samantha Lloyd is the Director of Marketing at Railz. We're building the largest financial data network to support the future of finance. She has a decade of experience building organic growth, brand, and digital marketing for startups and technology companies. In her free time, you can find Sam SCUBA diving, snorkelling, paddle boarding, and jet skiing.