Oct 4, 2016
100 Views
0 0

How Your Business’s Social Media Can Help You Get Approved for Loans

Written by

For some small businesses that need financing, online lending is one potential solution. Alternative and online lenders are more willing to offer loan products to newer businesses with lower credit scores, whereas traditional lenders typically require applicants to have at least two years in business and to have good to excellent credit scores (any FICO score above 700). Online lenders also use specialized technology platforms that streamline the underwriting and loan approval process, which means you get a loan approval decision in as fast as a few days. These platforms sometimes take social media metrics into consideration when determining the loan approval or amount. For instance, having a strong Twitter following, numerous likes on Facebook or positive reviews on Yelp may be an indicator that your business generates substantial revenue and has a large customer base.
Kabbage is one alternative lender that uses nontraditional sources of data to evaluate applicants for a line of credi..

For some small businesses that need financing, online lending is one potential solution. Alternative and online lenders are more willing to offer loan products to newer businesses with lower credit scores, whereas traditional lenders typically require applicants to have at least two years in business and to have good to excellent credit scores (any FICO score above 700). Online lenders also use specialized technology platforms that streamline the underwriting and loan approval process, which means you get a loan approval decision in as fast as a few days. These platforms sometimes take social media metrics into consideration when determining the loan approval or amount. For instance, having a strong Twitter following, numerous likes on Facebook or positive reviews on Yelp may be an indicator that your business generates substantial revenue and has a large customer base.

Kabbage is one alternative lender that uses nontraditional sources of data to evaluate applicants for a line of credit. The lender’s system analyzes your online checking accounts and any other electronic accounts that your business uses, which may include Amazon, PayPal or Etsy. Having a strong social media presence may also help your business get approval for larger amounts of funds with Kabbage.

In contrast, banks as a whole have historically stuck with their traditional application requirements. This means lots of required paperwork, which can include tax returns, income statements and detailed business plans. The heavy documentation requirement as well as the stricter eligibility minimums demonstrate how small businesses have a tougher time qualifying for loans from traditional lenders, especially if the business is newer. In the past year, some banks have begun to monitor other sources of data including social media, Amazon sales and public records such as utility and legal filings to streamline the approval process.

Eastern Bank, an independent Massachusetts bank, monitors online data for a more comprehensive review of a potential borrower’s business. They have also begun looking at Yelp reviews in addition to income statements to determine revenue. Prior to evaluating social media, the bank typically had conversations with business owners and site visits to the location of the business. Online reviews help the bank to get a better understanding of the applicant, but the bank will never reject a business based solely on these online metrics.

Other traditional lenders have begun to use alternative data in their underwriting process in different manners. JPMorgan Chase now collaborates with OnDeck to offer small business loans, and the bank uses OnDeck’s data collection and evaluation system, which analyzes social media metrics. OnDeck underwrites half of its loan using its automated proprietary platform, which compiles thousands of data points and studies the relationships among them to determine creditworthiness. According to its annual report for the 2015 fiscal year, the online lender hopes to expand its OnDeck-as-a-Service initiative with more partners in addition to JPMorgan Chase and Intuit.

Most banks and credit unions have stayed with traditional ways of evaluating businesses for loans because of industry regulations that require traditional lenders to perform specific credit checks. The alternative lending industry as a whole is not as regulated. The main issue with using social media to evaluate small business loan applications is that there’s no specific standard, and this may lead to biases when evaluating these accounts. Fortunately, most online lenders use social media or online accounts as only one part of the evaluation process and not as the ultimate determining factor. Using a combination of traditional and alternative factors may help small businesses get approved more easily by both banks and online lenders.

The article How Your Business’s Social Media Can Help You Get Approved for Loans originally appeared on ValuePenguin.

Read on: Nasdaq

Article Categories:
Banking

Leave a Comment