Lenders are getting smarter. So we share a few tools that online and MCA lenders use to gauge fundability.
Our company routinely works with small business owners to stabilize or grow their businesses. One important step that small business owners require our assistance is with the attainment of capital for their businesses. In a previous post, I discussed some of the statistics of how many small businesses are looking to borrow money for their business. Whether for consolidation of debt, expansion, real estate, or equipment, underwriting of any loan or advance, we generally are asked by small business owners what the lenders are looking for in order to get an approval.
Through professional conversations with brokers of merchant cash advance and online loans in the past, brokers seemed to have lenders who they suggested did not thoroughly vet client applications ultimately providing funding to small business owners who probably should not have been funded. While this has not been our experience, clearly the shenanigans of the merchant cash advance and online loans have been in existence for some time.
So, we decided to explore some ways that lenders vet possible lenders in the online and alternative lending space.
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In no way can one blog (or probably a book) do any justice to go through the art (and it is an art) of how banks or lenders go about their approval processes. We did however, find three tools that online lenders (i.e., OnDeck, PayPal) and alternative lenders (MCA, equipment) favor in vetting their applications.
What are the lenders looking for?
Simply put, there are many different variables that go into an approval. Yet, regardless of how strong a small business’ financials or bank statements look, one attribute that will kill any deal is whether a business has ever had issues paying back capital (defaults, slow pays, Judgements, fraud, etc.).
Three Tools that Lenders Use Which Unofficially Serve as A Blacklist
Online and alternative lenders use different clearinghouses who curate a multitude of data. From publicly reported data to credit records, these datasets provide a robust amount of information about potential borrowers and businesses. There are a few clearinghouses our there (others like Chex Systems) but here are a few that we know are commonly used.
LexisNexis provides business research and risk management services to various industries. These include lenders, insurance companies, vendors and more. These companies use LexisNexis to verify personal and business credit history (PayNet does this too), public records (PACER), and application history. And they use LexisNexis to assess risk on applicants. Inaccurate information, data which doesn’t match your application, or negative items in your LexisNexis report can have a drastic negative impact on your business. This is especially true during the application process.
Business owners can request a copy of their LexisNexis report and decrease the probability of surprises during the application process. Click Here to Request Your Report
Founded in 2015, DataMerch.com is a popular tool for online and alternative lenders. Lenders who belong to DataMerch.com upload their lending experiences ultimately painting a picture of many small businesses who have taken loans and merchant cash advances with their companies. Recently, DataMerch.com reported that they now have over 50,000 records on file.
Why is this important? DataMerch.com provides lenders a robust database so they can better inform their approval process. These records provide categorical data such as suspicious activity, slow payers, split payers, and COVID-19 Hardships. Lenders can also find out if small businesses have taken on recent or defaulted funding that might not appear in a business’ bank statements. Regardless, small business owners should know that lenders are not stupid and if you have had issues with your MCAs or loans, you will probably have some issues taking another loan or MCA.
NYS Court System
One place that online and alternative lenders check for issues with loans, MCAs or just other issues which might be a red flag for borrowers is the New York State Unified Court System (New York State Courts Electronic Filing). This website yields a host of legal cases from New York State but importantly, most alternative lenders are in New York so anytime there is a default, and a lender files a Judgement, that Judgement is listed.
If you are a small business owner and default on a loan or merchant cash advance and you are served with a Judgement, it will likely be listed here. The good news is that you can satisfy your Judgement which will be listed on the site after doing so. The bad news is that once you have a Judgement listed on this website it becomes very difficult to ever get funding for your business ever again. In some ways, have a Judgement posted on this site can be worst than a bankruptcy.
Would you like to see if you have anything listed? https://iapps.courts.state.ny.us/ is the link that used to access the files.
I wrote this Blog because when our clients get declined for loans or merchant cash advances, they tend to ask us why? Although lenders do not share much information with us, we do know that lenders are getting smarter about who they provide funds to. That is, lenders want to (and should) know that someone requesting to borrow funds will pay back their debt.
Over the years, we have seen just about everything small business owners have done to get funded. Specifically, we could write a book about some of the shenanigans some business owners who have negative payment histories have pulled to get funded.
When our clients or small business owners get declined for loans or merchant cash advances and ask why? Notwithstanding that many times the clients do not tell us they had issues with paying a loan or merchant cash advance, they should understand there are tools that lenders use, and it is very possible they are blacklisted.
So, if you are a small business owner who has had issues with paying back a lender, lenders are getting more informed, and they should be aware of this. Lenders are not stupid and if you had issues paying back a loan or merchant cash advance, rightfully so you will probably not be able to access more capital for your business. In fact, you will probably not find an easy road finding capital for another business as well.
Dr. Thomas W. Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.