CHAPTER 3 The Denial of the Qualified
People with good to great businesses may also be denied by some lending institutions even when they have good to great credit. The main reason why this happens is because the majority of funders or investors are very niche in the way that they fund projects or businesses. This is the reason why your local bank has probably told you that they will not fund or finance your business in spite of the fact that you have banked with them for years and they may know of your financial viability. The main motivation for banks to be this narrow in scope is to mitigate risk of default. Consequently, most funding consideration doesn’t involve a lot of in-depth look at how well your business is running if it does not fit the niche that your bank or lender prefers to lend to. This is why people hear stories like when Magic Johnson had to go to several banks before one of them would invest in his business plan. One way that Doriscar Capital Group have helped many clients in this arena is that we have relationships with approximately 100 different lenders, with their preferences organized so that when the lender hears from us, they know that we are sending them something that is close to their niche, which has the added benefit of getting the client closer to yes in a more efficient way, juxtaposed to walking to each bank and hoping that your good business fits that bank’s lending preferences.
Over the years, the dynamics of lending institutions have changed drastically. Back then, lending institutions were a bit generous with the way they offered credit to borrowers. In recent times, however, the trend has changed, where more and more people are denied funding by the various institutions even when they qualify for the different loans. This phenomenon has been attributed to the lending institutions being niched about how they offer loans. This phenomenon has resulted in many people being denied funding on the grounds of their purpose for the loans being outside the lender’s niche. The institutions have adapted to changing economic trends by reorganizing into a niche-based lending system, with an objective of minimizing their overall risk of default by the lenders. This way, they specialize in a particular niche and do not get burdened by trends from different niches (Warren, 2016). This section of the book aims at discussing the niche-lending phenomenon. In addition, Doriscar Capital Group’s efforts on offering borrowers insights to navigate niche banking will be discussed.
What Is Niche Lending?
Niche lenders essentially specialize in a single-market segment and normally have a unique product that they offer to their target-market segment. For instance, some lenders only offer loans that are to be channeled into green energy products, technology-related startups, or toward medical research ventures (Kamruddin and Sultana, 2018). To the lending institutions, the specific product that they offer is their specialty or niche. Niche markets, on the other hand, are specific market subsets on which the individual products are focused. Thus, market niches define the specific features of products that are designed to satisfy needs of specific markets. For instance, production quality, price range, and product demographic. Niche lending is often the reason why various people are denied credit even when they are qualified for the amount, and in some cases are even members of the institutions for long periods of time. A good example is when the legendary Magic Johnson had to seek funding from numerous lending institutions with no success.
Types of Niche Lending
Lending institutions may employ a variety of niches in optimizing their operations. One of the ways they achieve this is through geographical niches. As is suggestive of the name, institutions that employ this type of niche confine their services or product to a specific geographic area. This type can especially be beneficial to borrowers who opt for face-to-face interactions with the lending institution’s staff (Graham, n.d.). The relatively low customer base characteristic of this type offers borrowers more attention from the institutions. In borrower niches, the lending institutions specialize in a selected customer group with a clear membership organization that defines their niche. For instance, an institution may focus on first-time home buyers. In philanthropic niches, lending institutions opt to serve particular causes that are often geared toward achieving a community mission. An example of this is the Cherokee Nation’s housing project, aimed at providing locals with decent housing. Product niches are arguably the most common, where institutions identify a specific venture that they then lend to customers.
Advantages of Niche Lending
A modern-day adage has it that “in trying to market to everyone, you will market to no one.” This simple quote has resonated with numerous lending institutions, as they have made it their foundation in formulating their marketing strategies for their products. Narrowing down on a niche has been linked to offering the individual institutions a competitive edge over rivals, consequently increasing the institutions’ eventual bottom lines. When a lending institution identifies a particular niche, relationships with borrowers is enhanced, thus reducing the risk of default cases. As such, an institution can hire staff that is highly informed in the particular niche, resulting in borrowers’ experience being seamless, all-round, and informed. In addition, having a niche helps the lending institutions in reducing cost, a factor that results in the generation of more income since specialization enables better as well as more focused resource allocation. The optimization by lending institutions saves the companies and customers time since they know where to seek their loans for their businesses.
Doriscar Capital Group
Doriscar Capital Group understands that many organizations have preferences, and it does not try to change the organization’s preference. Rather, it studies each lender’s preference and tries to direct traffic based upon that lender’s preferences. This is beneficial in two ways. One, it allows the lender to feel confident that when they get a file from Doriscar Capital Group it is already in their niche. Two, it allows the business looking for the loan to get responses more efficiently. Lenders who have confidence in the one sending the file usually acts more aggressively when they know they will not be wasting their time reviewing something that is not in their niche.
Reference List
Doriscar Capital Group, “Business-to-Consumer Finance,” 2019.
Graham, S., n.d. “Narrowing your focus can open doors to new opportunities 2.”
Kamruddin, S., Sultana, A., 2018, “DIFFERENTIATED BANKS–A STUDY OF PAYMENT BANKS AND SMALL FINANCE BANKS, in: TWO DAY NATIONAL SEMINAR GST AND DIGITAL ECONOMY-IMPLICATIONS ON TRADE AND COMMERCE,” p. 93.
Warren, W. S., 2016, “The Frontiers of Peer-to-Peer Lending: Thinking About a New Regulatory Approach,” Duke Tech Rev 14, 298.