Using social media wisely can help you attract new customers, connect with partners and vendors, and grow your business. But did you know that it could also help you get a small business loan? A growing number of lenders—mostly online lenders—are using social media as part of their loan underwriting process. Here’s a closer look at what they’re doing, why they’re doing it and what you need to know about the practice.
While traditional bank lending is still primarily based on the 5 “C’s” of credit— Character, Capacity, Capital, Collateral and Conditions—nonbank lenders are innovating new ways of assessing applicants’ creditworthiness. Data from social networks, including Facebook, Twitter, LinkedIn and online ratings and review sites like Yelp, is part of the mix.
No, that doesn’t mean lenders will reject or accept you based on that Facebook post of you holding a beer at your last Fourth of July barbecue. Your business and personal credit score, business history and financials still matter most. However, lenders that use social media data believe the information gives them a fuller picture of the loan applicant and the business—so why not use it?
Some of the information that online lenders will look at on social media includes:
So far, using social media in underwriting is mostly limited to online lenders who tend to make smaller loans. However, some bigger banks and even credit scoring agencies are exploring adding social media into their mix when considering loan applications. One stumbling block for banks is that there is still no regulation in place as to how social media data can be used in underwriting, as long as the lender complies with fair lending laws. However, as the use of social media in underwriting grows, that will undoubtedly change.
Is the use of social media data a good thing or a bad thing for small business owners seeking financing? Advocates contend that incorporating social media gives businesses that are new, lack a track record or have a bad credit history a way to make up for those shortcomings by providing more information. (Allowing a lender to access your social media accounts is voluntary.) Opponents say it could lead to businesses being denied credit or getting poorer loan terms based on their social media profiles.
What can you do to improve your social media standing with a lender?