The State of the Working Capital Industry | Fora Financial Blog
What the State of the Working Capital Industry Means for Your Business
March 31, 2017

What the State of the Working Capital Industry Means for Your Business

When applying for additional working capital, it’s important to review the lenders’ application process, guidelines and funding speeds. What many applicants don’t realize is that it is equally vital to research the lenders’ current financial state, credibility and how it is affecting their customers.

If you read that a lender is having financial or legal issues, it is cause for concern and you should reconsider working with them.

With lenders like OnDeck and LendingClub’s recent headlines, this topic is more relevant than ever. Here are some detrimental effects that you can expect as a potential customer when applying to lenders that are making the news for all the wrong reasons.

The quality of customer service will likely suffer

Last month, OnDeck announced their fourth quarter annual results, stating they lost $35.9m in Q4 and 86.5m for the year. Due to this, part of their recovery plan entailed cutting headcount by 11 percent. This means they will have less personnel available to serve potential and existing customers. It’s imperative to consider how a lender’s addition or reduction of employees will influence your experience with their company. A lender that is cutting jobs will have less employees to accommodate customers; and that’s never a good sign.

In addition to customer service, with less employees it is probable that the development of their technology will slow down. Working with a lender that is constantly refining and improving their technology is important in the digital age, and may impact the likelihood of you working with them in the future.

Less attractive terms and rates

Waiting an extra day to hear from customer service is one thing, but paying more for working capital shouldn’t be something your small business is willing to risk. For OnDeck, provisions increased in Q4 to 10.2% from 5.6% in the previous year due to declined performance for longer term business loans. This means that future customers might receive shorter terms and higher rates to offset these performance problems. Due to this, other small business lenders might offer more attractive rates than OnDeck, and you should research your options. If a lender is having financial issues, they’ll likely have to increase their prices, which means your business could get a more favorable loan elsewhere.

Credibility matters

When a lender is featured in the news for having reputational issues, it causes concern for how they are conducting business. Last year, LendingClub announced the resignation of their CEO after he sold unqualified loans to an investor. Following this, the company’s numbers are 23% lower than their standings prior to the resignation scandal.

The negative impacts of this mistake aren’t over for LendingClub. Potential investors are going to think twice before partnering with them in the future. This can directly impact the working capital that Lending Club has access to, which will determine their rates and terms. If loan buyers don’t have confidence in LendingClub, they won’t buy the loans, which means LendingClub won’t be able to provide as many loans, which means they’ll have to charge the end user more. Integrity and accuracy of data are vital for an investor and should play a part in a small business owner’s decision process as well.

Do your research

What does this all mean for small business owners seeking capital to better their operations? There are numerous business lender options available, which is why it is pivotal that business owners do their research. Financial and legal issues often translate into a diminished customer experience and the potential that you’ll be spending a lot more than you have to. Do your business a favor, and investigate your options prior to sending in an application.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Jared Feldman is CEO and Founder of Fora Financial, a small business working capital provider founded in 2008. He has led the company in providing over $500 million to more than 10,000 customers nationwide.