How Social Media Can Impact Your Ability to Get a Loan
A key part of the efficacy and efficiency of online lenders stems from the fact that they use alternative data sources when making decisions regarding creditworthiness. One source which is becoming increasingly prominent is social media. It’s important to know how important this data is and what factors are being looked at, so your small business can ensure that it’s in a good position to receive funding should you ever need a small business loan from an alternative lender.
Social Media’s Increasing Importance
What’s important to note is that social media is just one of the data points being used in the credit application process. Lendified’s algorithm for example looks at “a review of financial ratios and a client’s social media footprint, alongside a deep web search of some 800 databases that red-flag undesirable clients,” as noted in this recent Financial Post article.
How Social Media is Being Used
Currently, social media is primarily being used for verification and fraud prevention purposes, but also increasingly to predict the chances of loan repayment. Examples of its uses are:
- To verify a person/ business exists. As online lenders are just gathering information about applicants through online application forms they need a way to see that the business applying actually exists, and that the person filling out the form on behalf of the business are actually who they say they are. This can be provided through social media being used to verify things such as the business’ location, its relative size (e.g. by it’s number of tweets), and its industry. It’s important to keep in mind inconsistencies between the information provided and that on social media, does not mean a loan will be rejected outright, but that further review will take place and delay the processing time of the loan. As time is often of the essence, especially for applicants that are using alternative lenders, this is something to be avoided.
- Prevent fraud. There are numerous patterns and data points that can be looked at to mitigate this risk. Even something as innocuous as copy and pasting as opposed to typing a name has been found to be indicative that a fraudulent bot is filling out the application, rather than a person.
- Make inferences about a person’s “character” based on people they know. If people have friends in their social networks that repay their loans... that’s usually a good determinant of their own creditworthiness.
- Insights into how they spend their time. Creditors may look for red flags such as excessive time spent at bars or casinos, which might signify that a person could be a high risk applicant.
- To predict the business’ chances of success. Based on factors such as how responsive they are to their customers on social media, and good reviews on sites like TripAdvisor, TrustPilot and Yelp.
The Future of Social Media in Alternative Lending
There is the potential for people to try “gaming” the system once the practice becomes widespread and known, which will need to be prevented as best as possible by lenders. Additionally, there will be more privacy concerns and regulations will have to emerge around how to ethically use this data. This will include ensuring compliance with all applicable consumer protection regulations including credit standards and guidelines.
At the end of the day, social media is unlikely to replace credit scores and other pertinent financial information, but chances are it will become an increasingly important data point to look at. This will allow more people and small businesses that don’t have credit scores to access credit.
As a small business, having an active social media presence already has many benefits from gaining valuable consumer insights to increasing brand awareness and loyalty. Keeping your business information accurate and up-to-date and engaging with customers, is already a part of this process, the fact that it improves your chances of loan approval should just be an added bonus. It’s also wise to be conscious of what you are sharing on your personal social networks as that can impact more than just your reputation!
What are your thoughts on this? Leave a comment below or chat with us on social at @Lendified!
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About the Author
Lendified is Canada's premier online lender for small businesses. The company was founded by former bank executives dedicated to provide businesses with fast, easy, and affordable financing. The Lendified team regularly produces blogs and guides to help small business owners succeed.