How risk-based pricing helps B2B lenders grow

Learn how risk-based pricing can help business lenders maximize loan profits, reduce lending risks, and build a healthy long-term portfolio.

Is a risk-based pricing notice required?

The Consumer Financial Protection Bureau (CFPB) requires a risk-based pricing notice for consumer loans that meet certain conditions, such as varying interest rates based on a consumer’s risk. However, a notice is not required for business loans. It’s generally only needed for credit cards, mortgages, auto, or personal loans. A notice isn’t required in business lending, even if a personal credit score is used in the evaluation.

Risk-based pricing for business loans

While risk-based pricing is more common in business-to-consumer loans, it’s not as widespread in business-to-business lending. At Canopy, we believe that should change.

The nature of business lending is changing, with more non-financial companies becoming embedded lenders and offering more flexible types of loans. These lenders, often software companies, are closer to their customers and more willing to try new things than traditional banks. Many already offer more flexible and innovative loans, such as working capital loans and B2B buy now pay later ( B2B BNPL) loans.

It’s a natural transition for embedded lenders and SaaS companies offering loans to adopt risk-based pricing to increase their ability to offer competitive products. Adopting this strategy in an area where traditional banks aren’t doing so can create an even more significant competitive advantage for business loans.

Adopt risk-based pricing for business loans with Canopy

Canopy is a lending platform that helps B2B lenders, often in embedded lending and fintech, create an integrated lending program for everything from origination to loan servicing. We firmly believe more B2B lenders should leverage risk-based pricing strategies to optimize their loan portfolios and increase profitability. Our features help lenders achieve just that.

When setting up new loan products, Canopy allows for default values in the loan policy’s attributes, but it also enables you to customize your loan model’s interest and fee structure. You can also set up automated policy customization based on your credit risk models and streamline pricing adjustments.

Your program will start with default terms which you can adjust based on risk level, a risk-based pricing model in action. To see how your risk-based pricing loans are performing over time, you can easily run reports on loan performance by different credit model cohorts.

Test your risk-based loan pricing model before going live

Canopy’s LoanLab lets you run simulations to preview potential outcomes based on various risk scenarios. This helps you test your new policy configurations before you go live with a loan product, so your team understands how risk-based pricing strategies will affect your portfolio.