I'm assuming you may be new to lending. Making a loan based on deposit balances is rarely a good idea. Deposits magically disappear when you need them most. Only deposits that are any protection are CD's with a hold against them. Just because someone has had money for 90 days doesn't mean they'll have any moving forward
I've worked on the B2B side of finance for a long time but am still new to the consumer side. It's not about "making a loan based on deposits" so much as it is knowing whether or not a borrower is dead broke or unable at the time the loan is issued to afford the expected payments. Instead we're looking at formulas and ratios based on other factors to make predictions about whether or not the borrower can afford the payments when we could easily check to see what actually is.
In B2B finance, checking to see whether or not the applicant can afford the payments (even if that cashflow magically disappears as you say) is of paramount importance. The last few months of banking history plays a big role in that assessment. Basically, if out of 1,000 data points they had to choose one to base all decisions off of, the banking transaction history would likely be the clear winner.
I'm not talking about traditional banks and collateralized loans for sophisticated big businesses either. I'm talking the mirror image of Lending Club but in business lending. This is how lenders like OnDeck work, a company who will make quick loans over the internet for as little as $5,000. All the tech-based business lenders say bank data is king but you guys are saying it's too much work for consumers to type in 3 fields on a website and that
things basically work different 'round these parts and that it's not important.
I ask how can this be? How can bank data be king for a sole proprietorship applying at OnDeck but irrelevant for a sole proprietor applying for a personal loan on Lending Club?
But I have a feeling if you ask to crawl someone's bank account, they'll just go elsewhere
In B2B finance, anyone unwilling to share their banking history is assumed to be fraud or broke. Going elsewhere is exactly what we want to have happen.
I realize that ignoring someone's banking history is all business as usual in consumer lending, but for the last nine years that I've worked on the B2B side, banking has been all that's mattered.
I'm having trouble reconciling the discrepancy when we are very often lending the same amount to the same people...