Applying for too large amounts can harm small businesses - Now they can estimate their credit limit through Krea's AI service
Many small businesses find it challenging to secure financing. Data from Krea's financing service shows that only 70% of all creditworthy companies get their application approved. The biggest factor for why their applications are not getting approved is that they apply for too small or too large loan amounts. Companies that apply for too large amounts from the start receive proposals with an 18% higher interest rate on average. That's why Krea has now further developed its loan indicator that helps companies apply with a reasonable amount based on artificial intelligence (AI).
According to Krea's financing report 2023, only 70% of creditworthy companies receive at least one proposal for their business loan application. The percentage of approved applications for creditworthy companies is at a very low level - on par with how it looked during Covid-19. The latest data for Q3 2023 shows that the approval rate has stopped falling but the future remains uncertain. Unique to the corporate loan market is that banks and other lenders can reject applications because the company is seeking an amount that does not correspond to the bank's own assessment.
If the company instead is applying for an amount that is in line with the bank's assessment, it leads to better terms. Krea's analysis also shows that the amount applied for is even the most important factor in predicting whether a loan application will be granted.
Carsten Leth, CCO at Krea: "We saw that many entrepreneurs find it difficult to choose a reasonable amount to apply for. That in turn hurts their chances of getting funding. Now that interest rates have slowly stopped rising, there are many who want to invest again. We therefore want to offer these business owners a tool to create the best applications possible."
Takes interest rates and economic conditions into account
The loan indicator's model is based on machine learning (a form of artificial intelligence). Krea automatically collects public data on every company that makes an application, and has already worked with over 26,000 small businesses, which gives a high accuracy. Unlike previous versions of Krea’s model, the current implementation is more self-learning and takes into account, for example, prevailing interest rates as well as the approval rate within a certain industry. Krea is unique with this solution and the technology has also been reviewed by AI Sweden, where Krea is part of the Swedish AI Startup landscape.
Carsten Leth, CCO at Krea: "Sweden has a high level of transparency regarding company data - for example, all financial statements are public. This transparency that exists has so far mostly helped lenders to assess credit risk, but we also want to increase opportunities for small businesses owners to take advantage of their own data."
Krea's loan indicator can be used free of charge via Krea's website. It is possible for companies to test their loan facilities up to SEK 3 million. For larger companies, the model does not generate an automatic answer, instead Krea suggests booking a free advisory meeting in these cases.