Advanced methodologies for credit risk assessment in small business lending operations within commercial banks

Posted: Oct 28, 2025

• Dr. Prof. Isabella Costa
• Dr. Prof. Jack Adams
• Dr. Prof. Jack Silva

Abstract

The assessment of credit risk in small business lending represents one of the most challenging domains in commercial banking operations. Traditional credit scoring models, while effective for consumer lending and established corporate borrowers, consistently underperform when applied to small businesses due to the unique characteristics of this sector. Small businesses typically exhibit limited financial history, volatile revenue patterns, and significant dependence on owner capabilities and market conditions. These factors create substantial information asymmetry between lenders and borrowers, resulting in either excessive credit rationing or imprudent lending decisions. The conventional approaches to small business credit assessment have relied heavily on financial statement analysis, credit history evaluation, and collateral assessment. However, these methods fail to capture the dynamic nature of entrepreneurial ventures and the complex interplay of factors that determine business success or failure. This research addresses these limitations through the development of a novel quantum-inspired computational framework that fundamentally reimagines how credit risk is conceptualized and measured in small business lending. Our approach moves beyond the probabilistic models that dominate current practice, introducing quantum mechanical principles to model the inherent uncertainty and potentiality of entrepreneurial ventures. The framework treats each business applicant not as a static entity with fixed risk characteristics, but as a dynamic system existing in multiple potential states simultaneously. This perspective allows for more nuanced risk assessment that acknowledges the transformative potential of small businesses while maintaining rigorous analytical standards.