Preciseli.ai – The cash flow underwriting service

Cash flow underwriting is the process of using a borrower’s income and expense data to inform the approval or denial decision on a loan. Cash flow data provides real-time information on an applicant’s income, expenses, and bank account balances—giving lenders a better sense of their ability to repay a loan.

Cash flow underwriting can be used as an alternative to traditional credit scores, or used alongside them to provide greater insights. This additional data also helps lenders to fairly evaluate credit invisibles, many of whom are young people and recent immigrants

Cash flow underwriting evaluates a borrower’s income, expenses, and liquidity to determine their capacity to manage debt payments. It focuses on the cash flow generated by the borrower’s financial activities.

The key Components are:

• Income:Underwriters analyze the borrower’s income sources, such as salary, self-employment earnings, rental income, or investment dividends. A stable and consistent income is favorable but not necessary.
• Expenses:The borrower’s monthly expenses (including housing costs, utilities, debts, and other obligations) are considered. Lower debt-to-income ratios are preferable
• Income:Underwriters assess the borrower’s available liquid assets (e.g., savings, investments, and cash reserves). Adequate liquidity provides a safety net for unexpected expenses.
• Income: This ratio compares the borrower’s net operating income (NOI) to their debt obligations. A higher DSCR indicates better cash flow capacity.

  DSCR = Net Operating Income (NOI)/Total Debt Payments

  • NOI includes rental income, business profits, and other recurring income.
  • Total debt payments include mortgage payments, credit card minimums, and other obligations

Cash flow underwriting is a valuable approach for evaluating borrowers’ financial capacity beyond traditional credit scores. The types of personal loan borrowers who can be better assessed by this method are:

• Young Adults and Credit Invisibles:Many young adults and individuals with thin credit files lack a substantial credit history. Cash flow data allows lenders to evaluate their financial behavior, even if they don’t have a well-established credit score.
• Self-Employed Individuals:Self-employed borrowers often experience irregular income patterns. Cash flow underwriting considers their actual cash inflows and outflows, providing a more accurate assessment of their repayment ability.
• Freelancers and Gig Workers:Similar to self-employed individuals, freelancers and gig workers rely on project-based income. Cash flow analysis helps lenders understand their financial stability and repayment capacity.
• Recent ImmigrantsCash flow underwriting benefits immigrants who may not have a long credit history in their new country. By analyzing their income and expenses, lenders can make informed decisions.
• Small Business Owners:Entrepreneurs seeking personal loans often have intertwined business and personal finances. Cash flow underwriting considers both aspects, ensuring responsible lending.
• Commission-Based Professionals:Salespeople, real estate agents, and others with variable income benefit from this approach. It accounts for fluctuations in their earnings.
• Retirees:Retired individuals rely on pensions, Social Security, and investment income. Cash flow assessment ensures they can comfortably manage loan payments without active employment.

Cash flow underwriting is crucial for lenders due to several reasons:

• Risk Assessment:Lenders need to assess the risk associated with lending money. By evaluating a borrower’s cash flow, they can determine the likelihood of timely loan repayments. A strong cash flow indicates a borrower’s ability to manage debt effectively.
• Loan Repayment Capacity: Cash flow analysis helps lenders understand whether a borrower’s income is sufficient to cover existing debts and the proposed loan payments. If the borrower’s cash flow is inadequate, it raises concerns about repayment capacity.
• Preventing Defaults:Lenders aim to minimize loan defaults. Cash flow underwriting identifies borrowers who may struggle to meet their financial obligations. By avoiding risky loans, lenders reduce the chances of defaults.

With Preciseli.ai, you get an AI based model that scouts through bank statements, which can be a direct feed or a scanned bank statement and provides insights based on cashflow underwriting techniques.

We also provide human resources to check grey areas and make sure the lender and the borrowers are benefitted through this process.