Alternative lending

Business development companies (BDCs) were trending ever healthier prior to the pandemic, but if the economy remains in the deep doldrums it may ultimately be their affiliated asset-management companies that investors should look to for assurance.

Because of debt restrictions in Main Street lending programs, many speculative-grade borrowers appear ineligible for federal loans to alleviate COVID-19 stresses, according to a new report from Fitch Ratings.

Financial regulators’ statement cautiously encouraging lenders to go beyond traditional underwriting in their lending decisions is a big step forward for the use of alternative data and artificial intelligence, bankers say.

Casting aside recession fears, the credit bureau predicts credit cards, mortgages, auto loans and unsecured personal loans should all perform well — including those extended by online lenders.

Alternative data "may improve the speed and accuracy of credit decisions and may help firms evaluate the creditworthiness of consumers," the agencies said.

Freddie Mac's test of artificial intelligence to make lending decisions could be a significant turning point in broadening the use of the technology.

The Upstart Network, the first and only startup to participate in the bureau’s program for promising digital platforms, claims that using nontraditional credit data items has helped loan volume and affordability.

Though the use of alternative data in lending is seen by some as untested, several fintechs say they couldn't function without it.

The tricky part: raising awareness without appearing to take advantage of borrowers at a time when agencies like the SBA are out of commission.

Allowing alternative data such as rent and utility payments has bipartisan support, but some say it could create more problems than it solves.