Europe’s first certified credit rating for SMEs has launched today in London. The service means that SMEs can, for the first time, receive a specific credit rating that traditionally only larger, public corporates have been able to rely on to demonstrate their value and creditworthiness.
The new SME credit rating, launched by Wiserfunding and modefinance, will enable small firms to demonstrate their creditworthiness to potential investors and lenders, helping to secure the funding they deserve. Traditional lenders can use company ratings to mitigate risk in anticipation of upcoming new Basel rules on capital requirements. Alternative lenders can demonstrate to investors they have carefully evaluated the risk profiles of assets in their portfolios.
In times when financial inclusion is the main focus of several regulators in Europe, the new SME-specific credit rating will bring much needed transparency to SME lending. By ensuring that funding is allocated to the best SMEs, credit bubbles and defaults can be reduced, ensuring stronger economies across Europe.
Wiserfunding’s and modefinance’s combined technology will provide a high quality, independent and credible risk assessment at a fraction of the cost and time required by large, international rating agencies. Existing credit ratings are only available to less than 1 million companies per country in Europe, with SMEs excluded due to lack of historical financial information and the complexities of assessing risk. The SME credit rating means that over 25 million SMEs across Europe will now have access to the same services enjoyed by publicly-listed firms
Wiserfunding was founded in 2016 by Professor Edward Altman, inventor of the Z-score model, the first model for credit risk assessment, and a leading world expert on SME risk modelling. The platform helps lenders more accurately assess the credit worthiness of small business customers that can be onboarded to an investment portfolio.
modefinance was founded in 2009 by Mattia Ciprian and Valentino Pediroda. Established as a spin-off of the University of Trieste, in a few years it has become the first FinTech Rating Agency in Europe after, on 15 July 2015, the European Securities and Markets Authority (ESMA) approved the registration of modefinance.
Gabriele Sabato, co-founder and CEO of Wiserfunding, said: “All too often, SMEs form the forgotten middle between corporate and consumer credit analysis, with large international banks not extending enough credit to them because they are riskier, more correlated with each other and more difficult to assess than large corporates. Yet the economic crisis and market turbulence that has characterised the last decade has verified the need for companies and financial institutions to develop adequate risk policies and faster, more reliable risk management and forecasting tools for businesses of all sizes. Our partnership with modefinance will democratise access to credit assessment methods usually reserved for large corporates, levelling the playing field for SMEs in the UK.”
Valentino Pediroda, CEO of modefinance added: “Financial technology has opened up new opportunities for SMEs, in particular through the expansion of financing methods and access to credit. With this new bond rating initiative aimed at European SMEs, we are helping a sector that has suffered greatly in recent years while on the hunt for credit to support their growth. We are extremely proud to be working with Professor Altman and Wiserfunding and we are confident that together we will be able to give real support to smaller European companies”.
Wiserfunding and modefinance’s sophisticated models use qualitative and quantitative elements to provide a credit rating within hours. The rating scale includes 21 classes, from A1 (highest credit rating) to C3 (lowest credit rating), plus an additional 4 classes reserved for non-compliant businesses or those which have ongoing bankruptcy procedures. The model’s advanced technology is able to adapt to suit these different needs.