By Levi Lewis, Vice President of Product Strategy, Lendio
If you’re a small business owner, you’ve probably needed loans to cover anything from getting through a slow season to expanding your initial footprint or exploring new product offerings. Given that between 40 and 50 percent of the American economy is fueled by small businesses, it’s surprising that half of business owners can’t get the amount of financing they need.
Even after spending upwards of 30 hours on loan applications — and weeks or longer waiting for responses — these drivers of American business often lack the access to capital needed to thrive.
For traditional banks, this is bad news. In an industry where relationships are key, turning down nearly half of loan applicants means nearly half of the customers are having a negative experience with the brand. In what other service industry would that ratio be acceptable?
Small business owners deserve better
While banks have gotten a little better at serving small businesses, the relationship still isn’t a perfect fit. And many small business loan applicants are still leaving the process with a negative view of their bank.
Where lenders should be considering how they can solve a customer’s problem, many only see their own balance sheets — and rightly so, as lending is a high-risk endeavor. While a one-size-fits-all approach with limited loan types might work in some areas of consumer lending, it’s not working for small business lending.
It’s true, many business owners aren’t qualified for the loans they seek. At least in a traditional sense. In fact, a majority haven’t been in business long enough, and half lack the revenue necessary to secure a loan.
Traditionally, lenders have viewed applying for a loan as a purely transactional process. Once an applicant is disqualified, that’s the end of the relationship as far as the lender is concerned. The gap in funding availability has created an opportunity. Online lenders and lending marketplaces are now capitalizing on that and creating customer experiences tailored to the small- and mid-sized business owner.
The customer must be more than just a number
Within the medical field, the adage “treat the patient in front of you” demonstrates a wealth of meaning for companies wanting to build a great customer experience. If a patient comes to the emergency room with a broken leg, they don’t care if there’s a world-class cardiologist onsite. They want an orthopedist. Likewise, the crux of a good business model is to address the customer’s needs, no matter where they are in a company’s product life cycle.
Disregarding a customer’s needs because they don’t necessarily fit the box is a huge disservice. And denying four out of every 10 potential customers isn’t good business for anyone, lending institutions included. Inevitably, financial service providers who seek creative ways to boost that number and improve the customer experience will rise to the top.
To do this, lending institutions should be asking themselves: “What matters to our customers and how can we make that happen for them?” For most lenders serving small business owners, answers likely revolve around a loan amount, a timeframe and the total cost of capital. But it could also include providing assistance with things like business formation, credit score improvements and cash flow management to help customers have a better experience not just right away, but also down the line. In other cases, it may mean partnering with a provider who can better meet the customers’ immediate needs.
Out-of-the-box solutions enhance the customer experience
As a lending marketplace, Lendio’s core business is to help small business owners secure capital. However, the customer’s needs often extend beyond loans, and many are not ready for our core capabilities. They may require help filing for a business entity, improving their personal credit score, or finding services to make their business more profitable (and more appealing to lenders). That’s why we cultivate relationships with solution providers.
By partnering with Lexington Law, Lendio is able to offer applicants help with improving their credit score via a personal consultation. This service boasts an average 40 point improvement over the first four months — a game-changer for many business owners seeking financing.
By providing a free bookkeeping software called Sunrise, we help our small business customers stay on top of their books and manage their cash flow. Once they have established a pattern of good cash flow management with consistent financial reporting, they are in a better position to apply for financing. And they’re more likely to receive the loan offers they seek.
By partnering with traditional lending institutions, we identify financing opportunities where the partner wouldn’t otherwise be able to serve a client, but we can. This is a win for everyone involved — the small business gets the funds they need, the referring partner institution maintains a positive relationship with its customer and Lendio builds its profile.
When we help customers in these areas outside of our core business, they often come back to us more qualified for our core capabilities. But more than anything, these additional solutions allow us to meet small business owners where they are in their journey. To keep American economic engines humming, financial institutions of all sizes must consider how they’re currently working with, and how they can better serve, small businesses and their unique needs.