By Joe Lawrence
According to an article in Forbes.com, banks are “facing a number of challenges from technology, regulation, and startups disrupting the industry.” And at a time when lenders are beginning to see the light at the end of the tunnel after the Great Recession, it’s more important than ever that they resume their role as the gatekeeper in the small business lending community.
After the crash of 2008 and the subsequent lending crunch, many business owners felt the
Best Practices Key Showing Improving Business Quality
need to look elsewhere for their loan needs and fled to the rising ‘fintech’ lenders. But after years of exorbitant interest rates and misleading truth of funding offers, many entrepreneurs are turning back to their local banks.
In fact, a 2015 survey by the Federal Reserve Bank shows that smaller banks are approving 76 percent of business loan applicants, while the ofttouted easy access alternative lenders actually approve only 71 percent of funding applicants.
But let’s be honest—bank lenders and other finance lending channels have a long way to go on improving their efforts to attract quality borrowers and build much needed long term business relationships. Here’s four ways you might consider to make your company more appealing for small business borrowers to work with you.
What Small Business Loan Borrowers Want
To provide the best service, traditional lenders need to change the way they think about loan applicants, viewing them as a partner in the transaction rather than just a borrower. If you can approach the application and approval process from the business owner’s point of view, it will go a long way in helping you build longterm relationships with quality applicants. Here are my four ideas to do that:
- Don’t expect the applicant to start the process Entrepreneurs need facts in order to make the best decisions for their business, and that includes the details of the loan process. It’s unrealistic to ask a business owner to go through a tedious loan process and then “just wait to see what happens.” Instead, tell the applicant up front what underwriters look for in loan applications so they will have a better feel for their approval prospects ahead of the application process.
- Acknowledge the benefits of other lending channels, but point out the differences in the financing terms, especially the funding While it’s true that an applicant can get a loan in a day from an online lender, they may not be aware of the true repayment cost. If you want to build a lasting relationship with clients, take the time to explain the rate calculations and the sum they’ll actually be required to repay. That information will demonstrate how your loan terms can save them money.
- At the Summit for Small Business Credit Innovations, some panelists spoke about the importance of entrepreneurs to understand how their creditworthiness affects their ability to secure a loan. Another way to help your clients and build a lasting relationship with them is to provide them with the information they need to understand this critical aspect of the process and how to positively affect their future credit scores.
- A recent study conducted by Pega points out how important customer service is to people when doing business with a The study shows that almost a quarter of bank customers would begin searching for a better bank if they received poor customer service. The survey points out that banks would do well to consider implementing customer service programs that focus on the needs of bank customers. Obviously, it’s important that you and all the members of your staff do all you can to make your clients feel like they are appreciated and valued.
Small business lending is rapidly changing, and in order to remain a competitive and successful participant, you should begin looking at the process from your client’s point of view. And the partnerships you’ll form by doing so will likely result in many longterm profitable relationships.
Guest columnist Joe Lawrence is a New Jersey real estate investor, entrepreneur, and business credit coach who works closely with lenders and investors. He shares his expertise with other business owners through Business Credit Workshop. “The favorite part of my job is when people tell me how much I’ve helped them–that’s what really makes it all worth it in the end.”