SBIR Phase I: Digital Underwriting Platform for Underserved Borrowers

Salus Financial Technology Inc., Charlotte NC

Investigators

Abstract

The broader impact/commercial potential of this Small Business Innovation Research (SBIR) Phase I project will enhance the understanding of predicting default risks for borrowers that lack traditional access to loans and credit. The project will result in a digital platform that efficiently underwrites borrowers for small dollar loans using an innovative technical approach. The project will allow any lender to use the platform to efficiently make small dollar loans, sparing traditionally under-served borrowers from costly alternative financial products. This technology helps financially vulnerable households maintain stability when financial emergencies strike. This Small Business Innovation Research (SBIR) Phase I project develops more effective ways to underwrite small dollar loans for traditionally underserved borrowers. Nearly half of the adults in the U.S. lack a prime credit score that is sufficiently high to allow them access to loans and credit. Traditional lenders are hesitant to lend to applicants with lower credit scores, due to a perceived higher risk of loss. The systems and information that are used to generate credit scores have limitations that can prohibit credit-worthy borrowers from receiving small dollar loans. The project will investigate alternative methodologies of underwriting small dollar loan applicants. The research will test these alternative methodologies and compare them to traditional credit scoring as a determinant of credit risk, and by extension, loan application approval. Upon completion, the project will demonstrate that an alternative underwriting methodology can generate lower default rates and more equitable lending decisions for small dollar loans when compared to traditional credit scores. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.