Latest Hurdle to Getting a Loan? Your Twitter Feed
Two puzzling and challenging aspects of business--funding and social media--are about to come together to become even more vexing than either taken separately. Lenders have begun to look at social media to vet borrowers, according to the Wall Street Journal. Although this new trend seems largely focused on consumers, businesses too, particularly smaller ones, could face loan rejections because of their social media activity.
How It Works
How could what you do on a social network influence a lender's decision? Take an example of a startup that makes a novelty item and sells its products via eBay or Amazon's marketplace. A snafu with a supplier caused delays on a number of orders and most of those customers left negative feedback on the transactions. The complaints begin to make your short-term review ranking plummet. Here's how a lender, worried about being burned on a loan, might interpret the information:
- Your company is building bad will among customers. That could mean future revenues will begin to fall, no matter what you show for past revenues or future projections.
- You might not be attending to your operations, which will undermine your ability to generate revenue and pay back the loan.
- You might explain to customers that someone is late with materials, but a lender will entertain the notion that you don't have material because you are in financial trouble and are waiting to pay off a past invoice to get more inventory released to you.
- A company that breaks promises to customers seems like a good candidate to break promises to a lender.
Have You Looked at Your Profile Lately?
You get the idea. This opens a whole new world of social pain for businesses. Facebook, Twitter, Instagram, LinkedIn, and the like used to be ways to reach customers and help promote a company's brand. The theory was that you could extend your marketing, catch prospects in new settings, and complement other communications. Then they offered ways of monitoring reputations and market perceptions of both your company and your competitors. Now you have all that, most of which is out of your direct control, on the edge of becoming a tool for lenders.
That can be difficult enough, especially as there are no laws governing how financial institutions can use social network data and no requirements for them to let you know that the information influenced their decisions. And although this use is nascent, major credit reporting firms have started to look at social network data to see if they could make effective use of it.
But why stop at lenders? Add in potential vendors, service providers, customers, business partners, job seekers--your social media presence, and all it can reveal about you, is an open book. Tending to your social reputation has just gained a new importance for all aspects of your company.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.