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Affordability insight is an important tool for lenders seeking to understand a business’ capacity to manage its existing and future financial obligations. Rather than focusing solely on credit scores or historic defaults, affordability assessments consider the broader financial picture, particularly income, expenditure, cashflow dynamics, and debt serviceability.
The process typically involves analysing transactional data such as account inflows and outflows, repayment schedules, and patterns of borrowing or credit use. For example, if a business consistently has sufficient surplus cash after covering operational expenses and debt repayments, it may be considered to have a strong affordability profile. Conversely, signs of irregular income, increasing reliance on short-term credit, or missed payments may raise red flags.
Lenders use affordability insights not just to evaluate risk, but also to ensure they are lending responsibly and in line with regulatory expectations. By understanding what a business can reasonably afford to borrow and repay, financial institutions can tailor lending products to better suit customer needs and reduce the risk of financial distress.
With the increasing availability of real-time data and advanced analytics, affordability insight is becoming more accurate and dynamic. It supports more personalised decision-making, enables early intervention when a business’ financial health begins to deteriorate, and helps foster longer-term, sustainable financial relationships.
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