Overview

Alternative data supplements traditional credit checks by providing a fuller picture of a small business’s operations and cash generation. Lenders and fintech underwriters use these signals to evaluate repayment capacity, seasonality, and customer demand when credit scores or lengthy credit histories aren’t available (see research from the Consumer Financial Protection Bureau and Federal Reserve for context).

Common types of alternative data

  • Bank and cash-flow data: daily or monthly inflows/outflows from business accounts and merchant services (highly predictive of short-term repayment ability).
  • Supplier and vendor payment histories: on-time payments to suppliers or landlords that show operational reliability.
  • Point-of-sale (POS) and e-commerce sales data: transaction volumes, average ticket size, and repeat-customer rates.
  • Utilities and rent payments: steady utility or lease payment records that indicate stability.
  • Verified online activity: customer reviews, booking/reservation logs, and authenticated social proof (used cautiously and with context).

How lenders use alternative data

Lenders integrate alternative data into automated underwriting models or manual credit reviews to:

  • Smooth spikes and troughs in reported income (seasonal businesses).
  • Confirm that bank balances and sales match reported revenue and tax filings.
  • Identify trends (rising revenues, improving margins) that predict future repayment capacity.
  • Reduce reliance on thin or missing traditional credit files, expanding access for startups and underserved businesses (SBA and CFPB guidance highlights how broadened data can expand credit access).

Actionable steps to present alternative data effectively

  1. Build a clean cash-flow package
  • Export 6–12 months of business bank statements, merchant processor summaries, and P&L snapshots. Reconcile any large, non-recurring deposits. See FinHelp’s guide on preparing a cashflow package for a small business loan application for a lender-ready format: Preparing a Cashflow Package for a Small Business Loan Application.
  1. Collect supplier and recurring payment proof
  • Gather invoices, canceled checks, or screenshots showing on-time supplier, rent, and utility payments. Lenders treat consistent vendor payments as strong operational signals.
  1. Share verified sales or booking data
  • Provide POS exports, marketplace sales reports, and customer retention metrics. If your processor supports it, provide aggregated merchant summaries rather than line-by-line customer data.
  1. Prepare a narrative and visual summary
  • Create a one-page narrative that ties data to your growth plan and 2–3 charts (monthly net cash flow, sales trend, and major recurring expenses). Lenders prefer concise, visual explanations.
  1. Use secure data-aggregation tools with consent
  • Many lenders use account-aggregation providers to pull transaction data; you’ll typically grant consent and can revoke access later. Treat security and data-sharing consent seriously (see Consumer Financial Protection Bureau guidance on account access and consent).

Real-world example (brief)

A neighborhood café with limited credit history compiled 9 months of POS sales, supplier invoices, and bank cash-flow statements. The lender used the sales trend and on-time supplier payments to approve a working-capital line the owner had previously been denied for using credit scores alone.

Risks, privacy, and accuracy

  • Consent and data security: Provide only requested data and use secure sharing methods. Aggregators and fintechs must follow data-security standards; always verify the provider’s reputation.
  • Data quality: Clean and reconcile your records — mismatched deposits, untagged transfers, or personal expenses in business accounts weaken your case.
  • Not a guaranteed fix: Alternative data improves the picture but won’t override clear insolvency or chronic negative cash flow.

Professional tips

  • Separate business and personal finances: This remains one of the single best ways to make alternative data persuasive.
  • Automate bookkeeping: Regular, categorized bookkeeping (monthly) makes it easy to extract consistent reports.
  • Lead with cash flow: Many lenders prioritize demonstrable cash generation over one-time revenue spikes.
  • Ask prospective lenders what alternative signals they accept: some prefer merchant-processor feeds; others accept supplier contracts or marketplace sales reports.

Further reading and internal resources

Authoritative sources

  • Consumer Financial Protection Bureau (CFPB) research on alternative data and credit access.
  • Federal Reserve research on small business credit and underwriting innovations.
  • U.S. Small Business Administration (SBA) guidance on small-business lending and documentation.

Professional disclaimer

This article is educational and does not constitute financial, legal, or lending advice. For a plan tailored to your business, consult a certified financial advisor or lending professional.