Small businesses today have struggled to access working capital loans from traditional lenders, giving way for alternative and marketplace lenders to enter the sphere. The lag in small business lending by banks is no secret; earlier this year, the U.S. Federal Reserve found that, while bank lending to small businesses was up, it has yet to return to pre-recession levels.
But the demand for bank loans stays steady. While rejection can be a tough pill to swallow, one major SME lender is taking steps to help businesses understand why they were not approved for a loan.
Wells Fargo, the nation’s largest SME lender, has reportedly begun calling the small businesses it has rejected for a loan to explain its decision and provide advice for business owners on how to improve their standing the next time around.
Reports by Forbes on Thursday (July 7) said Wells has taken to a new strategy to maintain its position in an ever-increasingly competitive market. While its calls to rejected SMEs can certainly help the small business moving forward, reports added that Wells is positioning these companies for potential future business with the bank.
According to the company, Wells said it has already called more than 12,000 small businesses that were rejected for a loan since it first began this program in March 2015.
“Some people are ready, and others have to become credit-ready,” explained Wells Fargo Head of Small Business Lisa Stevens in an interview with the publication. “We realize that we wanted to be approving more people, and that part of the relationship with the customer isn’t just approving them for loans but being on the journey with them when they get declined.”
Reports added that Wells had previously announced a goal of providing $500 billion in small business loans over the next five years. The pilot program to begin calling rejected SMEs first began in 2012 before its official rollout.
“These business owners don’t know what they don’t know,” Stevens added, with reports noting that many small business owners are unaware of how banks make their decisions to lend money or not, or of how to build up their credit.