Importance of Data Standardization in Small Business Lending

Data is the new gold that powers everything in today’s technologically advanced world. However, unlike gold, it’s available in abundance. So, every business needs to use a data strategy that can convert the structure of a large number of datasets into a common data format. Today, more and more businesses are leveraging data standardization technology for data collection, storage, analysis, and relevant use, and the one in the lending industry is no exception.

The power of data is well-known in the banking and finance sector. However, it’s also an indisputable fact that without data standardization, it’s tough to get the most accurate, real-time, and efficient data. Because it’s the quality of data that helps you understand your customers’ needs and make data-informed lending decisions.

What is Data Standardization?

In a nutshell, data standardization is the process of transforming data from different sources into a common format, allowing lenders to process and analyze it. The ability to consistently formatted data is crucial for small business lenders because of the large amount of data from disparate sources that are accessed.

In the current lending ecosystem, lenders utilize several types of financial data to determine creditworthiness and reduce credit risk. This data includes data from accounting software, banks, social media, online, and other financial data sources. However, this large amount of data can be problematic if it isn’t uniform, promoting challenges down the line. Fortunately, data standardization is an effective and affordable way to build trust and reliance on data.

Why Data Standardization?

Data standardization is the critical first step to improve the quality of financial data. Lenders can gain a competitive advantage by analyzing data effortlessly and effectively and providing customized solutions to their customers. One excellent way small business lenders are doing this is by partnering with third-party financial technology companies. These companies use AI and ML technology to provide financial data APIs to lenders that allow them to access the most standardized data of their borrowers.

Additionally, the use of technology to gather and standardize financial data provides considerable time and cost savings. Lenders can streamline operations, serve more clients, boost revenue, and ultimately improve their bottom line. Standardizing financial data is ideal for collaborative analyses, by enabling several lending professionals to work from a single platform and define clear and robust parameters from which to review and test data to form objective conclusions.

How to Plan and Implement Data Standardization?

Today, most small business lenders need standardized data but struggle to determine whether they will have the capacity. So, lenders must create an effective plan to accomplish their data standardization goals.

First and foremost, before choosing an application or supplier, it’s critical to set your project goals and focus on what information you need. After establishing your objectives, deploy the tools required to deliver the project. Ask a few important questions to yourself before deploying any tool for data standardization.

  • Will you use a tool in-house or go for a third-party API provider?
  • What software is used by the API provider to analyze the data?
  • How much data will be accessed through the software?
  • What types of data are required to make lending decisions?

Once you finalized the supplier and the imported data, it’s vital to assess how the insights will be displayed. In such a digital age, data should be presented using intuitive graphs and charts, so lenders can easily understand it and make smarter decisions.

What is the Importance of Data Standardization?

Making intelligent lending decisions requires a comprehensive view of borrowers’ past, present, and future financial position, data standardization is important for small business lenders to help drive these decisions.

From accounting to banking and cash flow predictive data, lenders need to collect and review different types of financial data sets to determine the creditworthiness of a borrower. But simply collecting, storing, and processing large amounts of data doesn’t necessarily lead to better lending decisions.

High-quality, accessible, timely, and real-time standardized financial data will be needed to streamline loan processes and to ensure that lenders can accurately determine the eligibility of a small business to repay its loan amount.

Those lenders equipped with futuristic data standardization technology are in the best position to provide the type of service today’s small businesses have come to expect. Remember, most lenders worldwide are not familiar with Fintech and many financial professionals are reluctant to embrace data standardization technology. Undoubtedly, those small business lenders who adopt, tend to thrive while those who don’t, get left behind.

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