Why Relationships Are Key to Successful Small Business Financing

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Most business owners understand the importance of finding the right funding partner that offers beneficial interest rates or one with an exciting catalogue of products and services. However, they often overlook the importance of the relationship between the funder and the fundee.

Having enough money, support and cash flow when you need it is crucial for a business's success and stability. So building strong relationships with bankers, investors, and alternative financers and investors is a key part of ensuring this stability. 

3 Reasons Why Relationships Facilitate Better Alternate Lending Processes 

1. You'll need to borrow again someday

Using debt strategically is crucial for growth, so you'll likely need to borrow again. A good relationship with your lender boosts your chances of future loan approvals, often with better terms and quicker decisions. 

Conversely, missed payments or poor interactions can make them hesitant to lend to you again, highlighting the importance of maintaining a positive lender relationship.

2. Relationships build trust and credibility

When you build strong relationships with lenders and investors, you lay the foundation for trust. These relationships allow them to see beyond the numbers and understand the passion and commitment behind your business. 

Trust isn’t just about being honest; it’s about demonstrating reliability and competence. If people trust you, they’re more likely to invest in you. 

3. Unique personalised solutions come from mutual understanding and good communication

A great lender isn't just a fallback for funding during tough times; they are a partner on your financial journey. By proactively communicating and building a relationship, your lender gains a deeper understanding of your business so they can identify potential solutions and catch issues early on. 

When lenders take the time to understand your business, they enhance their ability to provide unique funding solutions and better support your growth.

Why Relationships Are More Important for Alternative Lenders than Traditional Lenders

A paper published in ​​The Journal of Finance suggests that large banks often use credit scoring for small-business lending, favouring a standardised "cookie-cutter" approach over building relationships. This is because their hierarchical structures make it hard to utilise the soft information gained through relationships, which is valuable to loan officers but loses value as it moves through layers of decision-making. 

Alternative lenders often have flatter organisational structures and rely more on relationships for lending decisions. This allows them to leverage the soft information from their interactions with borrowers. For example, at Geddes Capital, we are more excited about a business’s future than we are about its past. We believe that every business has potential which is why we consider each application in its own right, taking into account the company’s growth trajectory. 

Developing strong relationships with lenders is crucial for small businesses seeking successful financing. Beyond securing funds, these relationships build trust, credibility, and a mutual understanding that fosters tailored financial solutions. Investing in these relationships not only enhances access to capital but also ensures stability and support through effective communication and proactive collaboration.

Missing out on the funding you deserve because of rigid requirements or funders who don’t take the time to build a relationship with you can stop you from reaching your business's growth potential. Reach out to a future-focused lender that takes the time to understand you and your business.

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