A relatively new federal rule requiring banks to identify a company’s owners has provided the foundation for a LexisNexis Risk Solutions credit score for small businesses.

The ultimate beneficial ownership rule, which the Financial Crimes Enforcement Network published in May 2016, mandates that financial institutions keep better track of the identities of their commercial account-holders, especially the largest owners of a company. The rule is part of a wider effort to fight money laundering and terrorists’ financial activities.

As it turns out, the rule is also helpful in making small-business loans. LexisNexis Risk Solutions in Alpharetta, Ga., has developed a new credit score that uses data gathered through compliance with the new rule.

Ben Cutler, senior director of small-business risk management at LexisNexis Risk Solutions.
"The risk assessment really has to be both on the person and the business," Ben Cutler of LexisNexis Risk Solutions says of analyzing small-business loan applications.

“You can’t really pull the two apart,” said Ben Cutler, the company's senior director of small-business risk management. “The owner is so much a part of the business. The risk assessment really has to be both on the person and the business.”

The Small Business Credit Score is the company’s first commercial credit score product based on alternative data, which includes sources like utility payments, state government registration documents and tax liens. LexisNexis has offered a consumer credit score based on alternative data for about eight years. It has taken this long to develop a commercial credit score because so few small businesses have a credit file, Cutler said.

About two-thirds of the 20 largest U.S. banks are testing the new credit score, Cutler said. He declined to identify the banks. LexisNexis Risk Solutions started selling the product this month.

It has also upgraded its business-verification product, Business InstantID, to include features for conducting beneficial-ownership due diligence. Business InstantID uses more than 10,000 data sources to help confirm identities.

Other fintech companies have also developed products to help banks comply with the beneficial ownership rule. Innovative Systems in Pittsburgh introduced a database in February that lets users cross-reference a company’s owners with economic or terrorism-sanctions registries.

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Andy Peters

Andy Peters

Andy Peters writes about regional banks, consumer finance and debt collections for American Banker.