Small-Business Lending Shifts to Cash-Flow Data as Rates Climb

A new way to judge borrowers arrives at a bad time

Lenders that serve small businesses are changing how they decide who gets credit. The personal credit score is giving way to the business bank account. Fintech lenders, and a growing number of community banks and credit unions working with technology partners, now treat real-time deposit and spending data as a main underwriting signal. The timing is difficult. Small business owners are borrowing in an economy marked by firmer interest rates, renewed inflation and weaker confidence.

The NFIB Small Business Optimism Index fell 0.8 points in September to 97.9, one-tenth of a point below its 52-year average.1 The federation's Uncertainty Index rose to 90, far above its historical norm of 68.3 This article looks at both trends together: how credit decisions are being rebuilt, and the cost pressures that make those decisions matter more to owners.

What cash-flow underwriting actually changes

The idea is simple. A traditional small-business loan file leans heavily on the owner's personal FICO score, because commercial credit scoring tends to favor larger, more established firms.22 Cash-flow underwriting adds variables pulled from recent bank statements, such as the timing and size of deposits and withdrawals and signs of financial distress. These give a more direct measure of whether a business can repay.22

The best independent evidence comes from FinRegLab, working with researchers at NYU Stern. They found that adding cash-flow data substantially improved default prediction compared with models built mainly on owners' credit scores and firm characteristics. The biggest gains came for low-score owners of businesses less than five years old.21 The study covered more than 38,000 loans that two fintech lenders made between 2015 and early 2024.25 The researchers define "low score" as a FICO below 700 and "young" as fewer than five years in operation.22 Those owners have historically been labeled high risk, and the paper argues that cash-flow data could give lenders more confidence to lend to them.21

The study does not suggest these borrowers get cheap money. Low-score borrowers in the sample paid average interest rates of about 18%, compared with 15% for high-score borrowers. They also received somewhat smaller loans.22 The realistic promise is wider access, not necessarily lower prices.

Who is adopting it, and how fast

Coverage of adoption agrees on the leaders and the laggards. Fintech small-business lenders are the most advanced users. For them, cash-flow data is often the main signal and the owner's credit history is secondary. Mission-based lenders and CDFIs are running documented pilots. Community banks and credit unions are uneven adopters.25 FinRegLab's work names pilots at Allies for Community Business, Ascendus, LiftFund, Ponce Bank and Texas National Bank.25

The reported results from credit unions are striking, though they come from vendor-linked case studies, not controlled research. Vancity says that with roughly the same staff, it went from 40 to 60 small-business loan applications a month to more than 400 after adopting a cash-flow platform.23 Unitus reports its approval rate doubled from about 30% to 60%, and decision times fell from weeks to as little as eight hours.23

On the fintech side, the selling point is speed. Lender roundups say same-day funding is standard at several online lenders, with some platforms approving applications in under ten minutes using live bank-feed data.27 Minimum credit scores remain, at around 625 for lenders such as OnDeck and Bluevine, according to one comparison.27 The two fintechs in the FinRegLab study also had floors of 600 and 660.22 Cash flow supplements the score. It has not replaced it.

Here the coverage diverges. Industry marketing presents cash-flow lending as a mature, solved problem. Slope, itself a fintech lender, argues that small businesses remain the most underserved asset class in credit and that no complete cash-flow solution yet exists, partly because there is no FICO-like standard score for businesses.26 Policy may also slow progress. Federal rules on consumer-permissioned data sharing were scheduled to take effect in 2026, but they have been challenged in court and the CFPB has sought to vacate them. Those rules would not cover business checking accounts in any case.22 The fairest reading is that cash-flow underwriting is proven in research and scaling in fintech, while infrastructure and standards are still catching up.

The cost squeeze on Main Street

The change matters now because owners face rising costs on several fronts. In September, 20% of NFIB respondents named inflation as their single biggest problem, up four points and far above the 7% historical average.3 A net 31% reported raising selling prices.3 Labor quality was the top concern for the third month in a row, cited by 26% of owners.5

Borrowing is also getting more expensive. A net 8% of owners reported paying a higher rate on their most recent loan, the highest share since June 2025. The average rate on short-maturity loans rose 0.7 points to 8.2%.3 NFIB's commentary says the Federal Reserve raised its policy rate and market rates followed.3 TD Economics notes that markets expect further tightening.2

This is a real divergence in the coverage. A survey from lender Crestmont Capital describes a "gradual easing bias" through 2026, with 54% of owners expecting rates to fall within a year.15 That outlook conflicts with NFIB's and TD's descriptions of a Fed that is raising rates. The more credible reading points toward higher rates. Owners counting on relief may be disappointed.

The effect on behavior shows in the data. Only 7% of NFIB respondents said it was a good time to expand, down five points. Planned capital outlays fell to 22%.3 In Crestmont's survey, 41% of owners said they had delayed at least one financing decision because of rates.15 The American Bankers Association's economists warn that slower expansion plans could weaken demand for small-business credit, while inflation and labor costs could strain margins and owners' ability to service debt.9

Business credit cards: the default option

When loans are slow or out of reach, owners use plastic. WalletHub puts the average business credit card rate at 21.16%, up nearly 32% over the past decade.11 It also notes that issuers can raise rates on existing business-card balances at any time, unlike consumer cards, which have stronger protections.11 Lender-compiled comparisons put typical business card costs at 19% to 29% APR, well above bank lines of credit.12

nCino, a banking-software vendor, argues that this is a failure of the banks. Its estimate is that half of U.S. small businesses use business credit cards and another 23% use personal cards for business costs. It says owners turn to cards because banks cannot underwrite small loans quickly, not because cards suit their needs.30 The company has an obvious commercial interest, but the reasoning fits with the credit-union results above. Faster, data-driven decisions on loans under $100,000 make it easier for banks to compete with instant card approvals.

Owner attitudes are mixed. A Bluevine survey found that 44% of owners seeking capital planned to open a new business card. It also found that nearly four in ten think rates remain too high.14 A U.S. Hispanic Business Council poll of members found that 82.7% use a business card and nearly 70% oppose proposals to cap card interest rates. Many said they value access to credit more than price controls.18 PYMNTS reports that 52% of small businesses do not carry a revolving card balance at all.17 Most owners appear to use cards as a convenience, while a large minority uses them as expensive working capital.

The bottom line

The change from credit scores to cash flow is real, and the strongest evidence suggests it helps the borrowers older models served worst: young firms and owners with weaker personal credit.21 Regulators and bankers also see technology as a positive force. Kansas City Fed survey respondents named technology as the factor most likely to lift small-business lending, and inflation as the most likely drag.19

Better underwriting does not change the cost of money, though. In an economy where optimism is slipping below its long-run average and loan rates are rising, owners are most likely to gain speed and access, not lower prices. The firms most likely to benefit are the ones that secure credit lines while their cash flow still looks healthy. Those that wait for a downturn will be judged on weaker numbers.