Merchant Advance Blog

Blog Article: Small Business Loans and Loyalty

As a business owner looking for a small business loans solution, you may have heard a similar refrain from many traditional lenders: your application is simply too risky for them. You can’t prove sufficient stability for these institutions to take you seriously as an applicant. And so forth. Merchant Advance Capital was founded to address this exact frustration among Canadians looking for small business loans.

Modeling a Customer Loyalty Feedback Loop

Consider, however, one of the unique advantages of being a small business: your ability to turn your focus on quality of product and service into a pillar of customer loyalty within your community. You’re the kind of business that knows your customers by name, gives them a friendly greeting, shows them that they’re people first. Your ability to create trust and relationships with your clientele makes you stand out from the big-box crowd.

This, in turn, enhances the stability of your cash flow: you can begin to predict certain customer behaviour at a reasonable scale over time by knowing that certain customers will return and spend in specific ways. Those customers who become advocates and generate word-of-mouth interest for your small business are even greater value-adds. It’s a positive feedback loop: improved loyalty generates improved business, which drives employee satisfaction and motivation, looping back around to creating a better customer experience and converting new customers into supporters.

Alternative lenders are catching on to the idea that customer loyalty can become a valuable metric when it comes to small business loans. San Francisco’s ZipCap, for example, is trialling a system whereby businesses ask repeat customers to “pledge” a prospective amount of future spending as collateral for a line of credit. In this system, businesses let their customers become active, informed participants who are aware of their own importance in the continued growth of the business (psychologically, a process similar to that which underpins crowdfunding enterprises like Kickstarter and Indiegogo.)

Thinking about customer loyalty in more quantitative terms may surprise you. The impact on your cash flow from a steady, predictable (and expansion-ready) base of customers is invaluable. It helps prevent or mitigate the¬†cycles of boom and slowdown that are common to many small businesses. Loyalty is not just a vanity metric: it’s a measure of the traction a small business has within its community. When it comes down to eligibility for financial products such as small business loans, larger-scale lenders may not see the absolute value of this traction. However, alternative lenders such as Merchant are becoming more and more attuned to the importance of “loyalty capital.”

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