The internet changes things. In the last two decades, it’s changed the way we shop, the way we spread ideas and the way businesses connect with their customers. And now, it’s changing the way your small business gets a loan. As the online alternative lending space has grown, it’s brought about some interesting trends that may change how your business pursues funding.
Here are six ways that the internet has changed small business lending for the better.
1. The Process Is More Transparent
Gone are the days of loan officers tucked away in conference rooms, deciding the fate of your business based on top secret conditions. Across the board, borrowers have access to more information than ever about how lending decisions are made, as well as what they can do to improve their chances of success.
As a whole, online lenders and loan brokers have taken proactive steps in recent years to educate their borrowers about different types of small business loans, the loan application and approval process and the meaning of specific loan rates and terms. This culture of transparency gives small business owners the opportunity to educate themselves about the lending process, make smart borrowing choices and have a better chance of being approved for a loan.
2. Underwriters Are Moving Faster
Having removed time-intensive data entry and bulky paperwork from the process, lenders are able to process loan applications faster than ever—as little as two to three days for some online lenders. This is compared to several weeks or even months for traditional bank lenders.
Even beyond basic data management, the decision process itself has gotten much faster. Underwriters are armed with more data and more technology to interpret that data, so they are able to make lending decisions with far less time investigating a borrower’s financial history and calculating qualifications. These once-laborious decisions now happen with just a few clicks of the mouse.
3. Qualification Standards Are More Holistic
Despite the benefits of speed, this data- and technology-driven process leaves many business owners fearing their fate may now rest in the hands of a faceless algorithm, which may appear incapable of understanding the nuances of a business’ success or failure.
Not so, says Steve Freshour, Director of Credit at Dealstruck, an online alternative lender. He insists, “Dealstruck’s process is still largely human driven. Our borrowers are unique, and this requires a member of our team to be involved. We do use technology to expedite the process for our borrower and to help our team to make more streamlined decisions, but ultimately a human reviews every file and makes a decision.”
Chris Capecelatro of Funding Circle agrees. “We know you’re more than just a number: your personal credit score doesn’t define you or the potential of your business. That’s why we look at unique factors that help us understand your character—not just your credit report.”
4. Your Online Presence Matters
Among these more holistic qualification standards exists one factor that may surprise many small business owners: the importance of your organization’s online presence. Capecelatro explains that “positive customer reviews on social media demonstrate your business’ potential,” not just your recent history.
Underwriters will look at your company’s engagement on social media, reviews on sites like Yelp and TripAdvisor, and will even use social listening tools like HootSuite and SproutSocial to learn what customers are saying about your brand behind the scenes.
This can be great news if your business is known for fantastic customer service, or if you have a small but mighty following of loyal fans. But it also means negative feedback online can hurt you more than ever. Don’t be afraid to respond proactively to that feedback, and take active steps to lead online conversations about your brand in a positive direction.
5. Borrowers Can Shop Around
Back when traditional bank lending was the only option, applying for a small business loan was pretty cut and dry. Borrowers would go to their local bank, fill out an application and the answer they received was final.
Fast forward to the internet age, where borrowers have the option to shop around and compare rates among a growing number of online lenders. And with the availability of online loan brokers and marketplaces, this process is easier than ever. As a business owner, you have the opportunity to shop around, compare rates and choose the loan that best suits your business needs.
6. You Have More Control Than Ever
So what do all these new trends in small business lending mean for business owners? Ultimately, it all comes down to control. You have the power to choose your lender, your loan product and to some extent, even your interest rate. With more information than ever about how underwriters make lending decisions, you can take proactive steps to improve your business’ chances of being approved for not just any loan, but one that truly empowers your business to succeed.
If you’re looking for a small business loan, make sure to read the four essential steps to complete before seeking a bank loan.