Did you know that about 50% of businesses fail at about the five-year mark? Default risk is a significant concern for businesses of all sizes. It can cause severe financial strain and, in some cases, bankruptcy.
However, businesses can take proactive steps to mitigate this risk. One such step is to use Inverite, a powerful tool that can help businesses assess the creditworthiness of their customers.
Understanding Default Risk
Default risk is the risk that a borrower will fail to repay a loan or credit on time. When this happens, the lender loses the principal and interest on the loan.
This can cause significant financial strain. For businesses, this can be particularly problematic. It can lead to cash flow problems and even bankruptcy.
Credit Risk vs. Default Risk
Credit risk and default risk are related concepts but differ in their focus. Credit risk refers to the likelihood that a borrower will fail to repay a loan or credit. Whereas default risk specifically refers to the risk that a borrower will default on a loan or credit.
Credit risk takes into account a range of factors, such as the borrower’s credit history, income, and financial stability. It is a broader concept that encompasses the risk of default. It also includes other types of risk, such as interest rate risk and liquidity risk.
Default risk, on the other hand, is focused solely on the risk that a borrower will default on a loan or credit. It is a more specific type of credit risk that is often of particular concern to lenders.
Examples of Default Risk
A bank lends money to a small business owner to help them expand their operations. However, the business owner runs into financial difficulties and cannot repay the loan. The bank is now at risk of losing principal and interest on loans. This can cause financial strain and affect its ability to lend to other customers.
An individual takes out a credit card and accumulates a significant amount of debt. However, they are unable to make the minimum payments and eventually default on the debt. The credit card company is now at risk of losing the money owed to them and may have to write off the debt as a loss.
A mortgage lender provides a loan to a homebuyer to purchase a property. However, the homebuyer is unable to keep up with the mortgage payments and eventually defaults on the loan. The lender is now at risk of losing principals and interest on the loan, as well as potentially having to foreclose on the property.
The Benefits of Inverite
We identify potential default risks before they become a problem. This, in turn, can help businesses make more informed lending decisions.
In addition to providing businesses with valuable insights into a customer’s financial history, Inverite also offers a range of other features that can help reduce default risk.
For example, Inverite’s payment verification system allows businesses to verify a customer’s income and employment status. This can help them determine whether the customer is likely to be able to repay a loan or credit.
How Inverite Works
Inverite uses data and AI to analyze a customer’s financial history and credit score and boils it down to a risk assessment score that lenders can reference when analyzing the creditworthiness of a customer. This information is obtained through a variety of sources. These include credit bureaus, financial institutions, and public records.
Once this information is collected, Inverite uses a proprietary algorithm that assesses the customer’s creditworthiness and identifies potential default risks.
Inverite also offers other features such as Instant bank verification (IBV) and identity verification that works to help businesses reduce risk and optimize fraud prevention. ID verification can help in verifying a costumer’s identity, if coupled with IBV, can significantly reduce risks involving default and your company’s underwriting process.
How Inverite Compares to Other Credit Assessment Tools
Inverite uses a proprietary algorithm that takes into account a range of factors beyond just a customer’s credit score. This means that businesses can get a more accurate picture of a customer’s financial health and potential risk tolerance.
Along side additional services such as ID verification and Risk Score, that can help businesses make more informed lending decisions. This can help businesses reduce default risk and avoid financial strain.
Real-World Examples of Inverite in Action
Many businesses have been using Inverite to reduce default risk and improve their lending decisions. For example, a business that provides short-term loans to customers used Inverite to assess the creditworthiness of its customers.
Businesses are able to identify customers who were at a higher risk of default through Inverite and adjust its lending decisions accordingly.
Using Inverite’s real time Instant Bank Verification, businesses are able to verify the income and employment status of its customers. This, in turn, helped businesses make more informed lending decisions to reduce default risk and avoid financial strain.
Whether a business is large or small, Inverite can provide valuable insights and make more informed lending decisions.
Chat with our 1-on-1 support team today about how Inverite can help protect your business.