Advances in Small Business Financial Health Measurement

Overview

In 2025, FinRegLab launched a project to evaluate how electronic cash flow data from small businesses’ bank accounts can be used to measure their financial health and the impact of loan capital on their operations. The initial analysis uses data from community development financial institutions (CDFIs), given their focus on serving smaller, younger businesses that often struggle to access credit and their emphasis on impact measurement to understand borrower outcomes.

The project started with an initial landscape analysis of existing financial health measurement frameworks and CDFI impact measurement practices that lays out the financial health framework that will be used in the subsequent research. Additional components will include an empirical study using transaction account data from several CDFIs piloting cash flow data for small business financial health assessments and qualitative research and convenings to explore broader issues shaping financial health measurement initiatives, including the potential use of data to deepen customer relationships, inform product design, and support distressed borrowers. Through these workstreams, the project will explore where cash flow data can provide more informative measures of borrower performance and health and improve upon traditional approaches such as surveys and credit reports.

FinRegLab anticipates that this project may lead to additional workstreams, such as further testing of financial health metrics with larger financial institutions to study patterns among different small business segments and exploration of how small business financial health insights may inform the design of specific financial products and services. This includes potential applications for AI in analyzing small business financial data and providing real-time insights for financial institutions and customers. At a time when small business formation is rising as economic and financial stressors intensify, financial health measurement offers a powerful way to better meet small businesses’ financial needs and support their growth.

The project builds on FinRegLab’s past research analyzing the use of cash flow data and lending technology in initial loan underwriting. Although it is focused specifically on small businesses, it may also have implications for measuring financial health for consumers as financial institutions increasingly look to new data sources to deepen insights and facilitate more nuanced longitudinal assessments.