The market is continuing to move.  Small businesses are often the first to react to economic fluctuations. Although, even with careful monitoring of market changes not all small businesses will respond to trends the same way. 

In this blog, lenders can learn strategies on how to stay ahead of the shifting market.

Focus on Alternative Data

In response to declining credit quality nationwide throughout 2023, small businesses are increasingly exploring nontraditional lending avenues. Business owners seek alternative means of financing amidst tightening credit conditions. 

According to a Federal Reserve survey conducted in 2022, a significant gap in small business financing was evident. In 2022, only 53% of credit applicants secure full approval1. As small businesses navigate the evolving financial landscape in 2024, the emphasis on establishing and nurturing strong customer relationships has never been more critical. 

Insights from the same Federal Reserve survey highlight how existing relationships with lenders are paramount for businesses seeking financing through banks. Conversely, for those utilizing online lenders, the perceived likelihood of approval and the speed of funding emerge as the primary drivers for applying. 

Against this backdrop, leveraging alternative data in decision-making processes can prove instrumental in enhancing customer experiences and strengthening lender-borrower relationships. By integrating alternative data sources, lenders can:

• streamline application processes, 

• increase approval rates, 

• and ultimately provide better service to their customers. 

This approach can foster trust and loyalty. It ensures that businesses turn to their preferred lenders when seeking future capital to fuel growth initiatives.

Target the Right Small Businesses

 

For lenders, the pool of small business credit applications can be murky. How can you ensure the small businesses you work with will be the right fit? 

Essential steps include:

●  Verifying the legitimacy of a business

●  Identifying its principals or owners

●  Uncovering other businesses associated with the applicant 

Additionally, leveraging business verification tools offers a streamlined solution for lenders to access current and relevant information. This facilitates the efficient confirmation of small business legitimacy and ownership details. These tools allow for smarter decisions by showing comprehensive profiles of customers and prospects with industry-leading, differentiated data.

Navigate Forward

In the dynamic landscape of economic shifts, small businesses stand as nimble responders. However, understanding that not all sectors respond uniformly is crucial. Keeping abreast of such trends is made easier with resources like the Small Business Indices. The indices provide invaluable market insights for staying adaptable amidst evolving economic conditions. 

Forward motion is not just a strategy; it's a commitment to your customers. Challenging financial times require proactive planning, goal setting, and relentless momentum.  For more, read the full Q2 report in our eBook as well as our previous two blogs (Small Business Resurgence: Insights and Trends for the Year Ahead, From Strain to Resilience: Small Business Strategies for 2024) in this series. Also, find more economic and credit insights by registering for our monthly Market Pulse webinar. Our webinar provides the latest data and trends from industry experts.

1 https://minorityaffairs.nv.gov/uploadedFiles/minorityaffairsnvgov/content/Meetings/2023/2023_SBCS-Employer-Firms.pdf