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For small business owners, financials are seldom able to adequately reflect success. Cash-flow is generally an issue and tax write-offs can lead to even weaker financial reporting. When traditional lenders makes that fateful decision to lend or not to lend, the reported taxable income is often all anyone considers. However, some alternative lenders have realized they can tap into data points beyond the financial spreadsheets through automated underwriting.
Lenders have made financial decisions through a process called automated underwriting since the 90’s. Today, alternative lenders are taking the automated process to the next step by incorporating data points unheard of a few years ago. They’re going beyond the spreadsheets to make sound lending decisions for small businesses and startups that need the cash.
Considered proprietary, these alternative data points vary from lender to lender, but they can include social media and online reviews as well as shipping information. One of the most important of these new indicators is social media.
Positive Yelp reviews and a high number of Facebook likes are strong indicators of a successful business. If your small business has a large social media following, lenders know these fans are customers as well as brand advocates. Fans will bring in business today and will stick around. Some lenders have figured out that a business with an active virtual community is less likely to default and factor this into their automated decision-making.
Shipping company data can be another strong predictor. Regular shipments show a strong customer base. Large, heavy packages can be indicators of healthy sales. If your shipments are regular or large, regardless of what’s reflected on your balance sheet, lenders will have a pretty good idea business is going well.
Credit card companies started creating rules about people’s spending behavior and repayment history to facilitate them in lending decisions several decades ago. But in today’s connected world, we’re finding more robust sets of data and more sophisticated analysis tools. These new underwriting practices benefit both borrowers and lenders. As a small business owner, with access to automated and alternative lenders, you have better access to capital and more flexibility as you grow your business.