Existing procedures for securing credit are often long and complex for SMEs. Zurich-based Ratyng wants to simplify this process for borrowers and lenders. With this in mind, it has automated credit risk assessment and accordingly the loan application.
Rating models are used to estimate a company's financial soundness. But in many cases, as SMEs do not know their value banks have to evaluate them. When a company applies for credit, banks use a rating system to classify its solvency and give it a rating. This value indicates the extent of the risk that a company may be unable to repay a loan. The decision criteria are similar for all banks and other rating agencies. These are based primarily on financial data such as sufficient liquidity, a reasonable proportion of foreign capital and standard profit margins for the sector in which the company operates. Non-financial factors such as corporate management or economic outlook may also be considered. The requirements for credit depend on the grade assigned.
Ratyng was founded in Zurich in 2020 by management experts Matthias Schaller and Volker Haushalter and currently has a staff of six. The start-up wants to make SME risk assessment simpler and more transparent as well as to involve companies in the process.
What does Ratyng offer SMEs?
Matthias Schaller: In January, we launched our new CoRa (Company Rating) certificate on the market. It allows SMEs to obtain information on their creditworthiness by replying to just a few questions; and via a simple, digital process. We use rating models similar to those used by Swiss banks to grant loans. Once the companies have submitted their responses, we explain the process that led us to this result. We also offer them full transparency on their rating, and in what areas they are performing relatively well or not. The idea behind this transparency is to allow SMEs to actively communicate with their business partners. We act as a completely neutral third party.
How did the CoRa certificate originate?
Schaller: Initially, we wanted to make it easier for SMEs to get bank loans and to help banks create digital solutions. We found that the existing credit procedures for SMEs were very long, complex, and not sufficiently transparent. Many SMEs are discouraged by these difficulties, and the credit facilities needed to take advantage of existing investment opportunities are simply not sought. Attempts to create a simple digital solution for SMEs, such as that used for private credit, have so far failed due to the complexity of assessing solvency. We have been able to solve this problem thanks to our rating models which, with only a few key data entries - 16 criteria in total - give results that are as effective as traditional banking models. The next step, which was to make the ratings directly accessible to SMEs, seemed logical. This is the origin of the CoRa certificate.
What are the benefits of automatic loan applications for SMEs?
Schaller: Digital procedures cost much less and allow SMEs to test the conditions under which they could obtain a loan quickly, anonymously and in a non-binding manner.
When are the credit ratings determined?
Schaller: Solvency is assessed in one way or another almost daily in trade transactions. For example, during formal credit verification processes by banks, during leasing transactions, for certain insurance purposes, or when a company wishes to pay by invoice. These audits are usually done without the SME's involvement, and they do not receive any information about the results.
How can Ratyng's rating model be useful for SMEs?
Schaller: Thanks to our approach, SMEs can actively participate in every interaction where a business partner requests information from them. For example, a company can present the certificate when applying for credit from a bank. It can also be shared with other business partners with whom the company wishes to collaborate on a long-term basis. With this rating, SMEs can provide information without being forced to disclose confidential financial metrics. But the rating is equally convenient for the beneficiary since it simplifies the evaluation and reduces the uncertainties.
Where do SMEs need to pay particular attention?
Schaller: They should ensure that they provide sufficient information to their business partners. The lack of information often creates uncertainty because very little relevant data on SMEs is publicly available.