What's social media got to do with getting a loan for your small business? Lots! According to an article in The Wall Street Journal, lenders are mining social media to determine a borrower's creditworthiness. While this practice is being used primarily by start-up lenders that issue smaller loans, experts quoted in the article note it could become more mainstream.
The use of social media to measure creditworthiness is alarming to some who view it as an invasion of privacy. The concern is that small businesses will be denied credit or burdened with higher interest rates based on their social media presence.
Recently, I appeared on the Willis Report on Fox Business Channel to discuss the pros and cons regarding the use of social media presence in lending decisions. Here's my take.
First, if anyone thinks their social media postings are private -- then they are a fool in my opinion. It's simple. If you wouldn't want your post to be plastered on a billboard or on the the front page of The New York Times, then don't post it.
Lenders make decisions based on the 5 Cs of Credit: capital, collateral, capacity, conditions and character. A loan applicant can put together a loan package that tells a compelling story, but social media gives the lender a truer picture of the individual or small business in terms of both their character and their capacity to repay the loan.
Character is obvious. If you present yourself as a hard-working person with integrity, but your social media shows you are out partying every night, going into work late or blowing it off completely -- then the lender may question your character. Additionally, if you've puffed up your work experience in your loan application and it doesn't match the information online, your integrity could come into question.
Lenders can also get a better indication of your capacity to repay your loan through social media. Let's say you're applying for a small business and you show robust financial projections in your loan package. Then a lender searches your social media presence and finds myriad negative reviews about your company or you've posted complaints about losing business or vented about how lousy your customers are. That could put into question your projections and your capacity to repay the loan.
On the flip-side, there is only so much information you can pack into a loan package. Your online presence could enhance the likelihood of your loan approval. Positive online reviews from customers demonstrate the strength of your small business. Recommendations on your LinkedIn profile page add credibility.
The bottom line is whatever you post on the Internet is a reflection of your business and you. Employers, customers, and yes, even lenders are going to be watching. So filter your remarks before your post.
Susan Solovic is an award-winning serial entrepreneur, media personality and a New York Times, Wall Street Journal, USA Today bestselling author. Her books have been translated into multiple languages.