Do Business Lenders Care About Social Media?

  •    Priyanka is a member of the editorial team of Fit Small Business. Prior to joining Fit Small Business, she served as general counsel of a startup in San Francisco.

It’s no secret that good buzz on social media can help a small business attract customers, but did you know that it can also help a business get a loan? Increasingly, online small business lenders are looking at businesses’ Yelp reviews, Facebook profiles, and Twitter pages as part of the underwriting process.

At the end of the day, a bunch of 5-star reviews won’t make up for a bad credit score or low revenues. However, a positive social media presence can help you get a loan more quickly and may even tip the balance in your favor if you haven’t built up a credit history. In this article, I’ll share how lenders are using social media data and how you can use this trend to your advantage.

How are online lenders using social media data?

Verifying business information.

Small business lenders such as OnDeck and Behalf use social media data in the underwriting process but not necessarily in the way you think.

In most cases, underwriting staff are not weeding through your Yelp page, singling out that one bad review from 2010, and they’re not reading every comment on your business’ Twitter feed. Instead, lenders check your social media to verify your business information.

Unlike banks, online lenders don’t really know who their customers are when they first apply for a loan. All they have is the information that the borrower provides in the online application form, but how do they know a fraudster posing as the business owner didn’t fill out the form? Social media data allows them to verify things such as the business’ location, its relative size (i.e. do you have 10 tweets or 10000?), and its industry.

Inconsistencies found via social media can delay your loan application. For example, If a restaurant applies for a loan online, claiming to have high revenues for the last 5 years, but only has a handful of Yelp reviews, that raises a red flag. This won’t necessarily prevent the business from getting a loan but will raise questions and slow down the processing of the loan application.

Evaluating borrowers with no credit or ‘thin’ credit

For a small set of borrowers, social media data plays a larger role beyond just verifying business information. About 1 in 10 Americans don’t have credit scores. For such applicants, a strong social media presence can fill in the gaps and may help them get a business loan.

Lenders like the non-profit Opportunity Fund actually have staff that read through a business’ social media pages when the applicant doesn’t have a lengthy credit history to support their application. If their application is borderline based on other information, such as business revenues, a good social media presence can help tip the balance in their favor.

Will social media data be a big part of online lending going forward?

Going forward, social media could play an even larger role in lending.

In the last few years, getting a business loan has become much faster and more efficient. Alternative lenders have underwriting algorithms that search through thousands of data points--collectively called Big Data--about your business. These include things as varied as Yelp reviews, Facebook posts, industry codes, Better Business Bureau ratings, payroll and tax data, etc.

Even traditional players in the lending industry are taking note of Big Data. For example, Fair Isaac Corporation, the maker of the popular FICO consumer credit score model, recently announced the creation of an alternative credit score model that takes payment history on cell phone and utility bills into account. This would allow 15 million previously ‘unscorable’ people to receive scores.

Social media is just one data point in the full mosaic, but it reveals a larger trend of relying on nontraditional data sources to make lending more efficient and hopefully more accurate.

What can small business owners do to improve social media presence?

1. Engage customers on social media.

You don’t have to use every social media platform, but you should be active on 1 or 2 outlets that make the most sense for your business. For example, a restaurant might rely heavily on Yelp, while a fashion or cosmetics business might prefer Instagram.

Whichever platform you choose, use it to your advantage. Respond quickly to customer comments and queries, post articles or photos, and foster discussion among customers. Doing this has multiple benefits for your business, with the added bonus of showing lenders that you’re a serious business with a solid customer base.

2. Keep business information accurate and up-to-date.

Make sure things like your business address, phone number, email address, and hours of operation are up to date on your online profiles. This is a simple matter but often overlooked. Having wrong information can needlessly slow down a loan application.

3. Maintain separate business social media accounts.

Most lenders look at your business’ social media profile, not your personal accounts. However, new businesses or those that revolve around the owner’s personality (e.g. a law firm or freelance shop) often rely on personal accounts to promote and market the business.

It’s important to have separate business accounts so that events in your personal life don’t affect your business. For example, if you’re posting about a late night party where you got drunk or sharing articles about bad breakups, that could cause a lender to question your responsibleness. Do yourself a favor and set up social media profiles for business use separate from your personal accounts.

​Bottom Line

Lenders are increasingly looking to social media to determine if they want to loan money to a business. The way things stand, social media data is not the only factor or the most important factor in getting approved for a loan, but it can help (or hurt) your chances. Following the tips above will help you put your best foot forward.

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