PNC Bank is integrating technology from OakNorth to retool its commercial underwriting business. OakNorth, which operates as a bank in the U.K. and white labels its underwriting technology to other lenders, has developed what it calls a “COVID Vulnerability Rating” (CVR) framework to create a more granular, forward-looking approach to underwriting small businesses. 

“Banks typically only have the capacity to take a macro look, so they might say the whole hospitality sector is really suffering,” said Sean Hunter, chief information officer at OakNorth. “In actual practice, if you look at the different businesses, they are suffering in very different ways and are going to reboot in different ways.” 

OakNorth’s technology examines 130 pandemic-related stress scenarios and takes into account traditional credit factors, like revenue and costs to underwrite individual businesses. According to Hunter and Valentina Kristensen, director of growth and communications at OakNorth, the tech helps banks underwrite SMBs with the same fine-tooth comb they would take to a larger corporate client. 

Hunter used the restaurant industry to highlight why lenders need to look beyond an SMB’s category. A pizza place that specializes in takeout might thrive during a pandemic lockdown but see a drop in revenue when people start eating at sit-down restaurants. A fine dining establishment, on the other hand, probably won’t do a great takeout business but will see its revenue normalize once lockdowns lift, especially since upscale restaurants already have plenty of space between tables and strict cleaning procedures. 

Using the CVR framework, lenders can assign SMBs a score of 1 through 5, with a 5 representing the most vulnerable businesses that need re-underwriting and a new financial plan. PNC, the Pittsburgh-based bank with $445 billion in assets, is using the CVR framework to do a full diagnostic of its portfolio to see which businesses will need an adjusted outlook due to COVID-19, specifically for its commercial and industrial, and commercial real estate loan books. 

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Kirstensen said OakNorth, founded in 2015, has helped lenders process about $400 billion in loans since January. The company’s U.K. bank acts almost as a proof of concept to show lenders how effective the technology is, according to Kristensen, and has processed about $5 billion in loans since its founding. She added that the bank specializes in loans around $1 million to $25 million. 

OakNorth is part of a crowded field of technology vendors marketing underwriting technology to lenders. Teslar Software and nCinco both work with banks to process commercial loans. Ryan Storey, director of loan operations at Great Southern Bank, said in a webinar in April that nCino’s software helps the bank manage documents between departments efficiently. “It’s something everybody uses on an everyday basis,” he said.