Trust and Relationships in Cyberspace

Interesting thing happened recently, I started to get blog visitors from a blog/website of an online company selling financial services to entrepreneurs. These guys have posted a link to my blog and many other business resources. The link list is thoughtful; someone has clearly put some time into assembling it.

I even got a little note, telling me that that my blog had been posted to their link list. I wrote back asking for more information about their company, and specifically who owns the company. I received a cordial reply that didn’t really answer my question.

I’ve logged some time managing in and consulting to small businesses. But I’ve spent even more time in banking. One of the old sayings in banking is, “the first rule of banking, is know your customer.”

Back in the day, I guess that this rule must have had a literal meaning. By the time I started my financial services career, this rule implied oversight and analysis of your customer’s financial status. (There are other more current meanings having to do with making sure you’re dealing with a real company, as a hedge against inadvertent money laundering.)

Of course, financial services markets have moved faster and faster. According to Roger Lowenstein, writing in Sunday’s NY Times Magazine, the fire of the mortgage crisis has been fuelled by bankers who have no interest in knowing their customers, because loans will be sold into secondary markets:

“As mortgage bankers discovered that investors would buy virtually any loan whatsoever, they naturally lowered their standards. What difference whether a loan was sound if you could flip it in 48 hours?”

Small business financing is tough to come by. Yet you’re going to need to exercise extreme diligence when considering your sources of financing. You need to know your banker.

Most of you already know that George Bailey probably isn’t going to loan you money to start or expand your business. Building relationships takes time, and one of the most important things you can do for the health of your current or future small business is to protect your own good credit rating.

Cyberspace moves pretty quickly, too — even faster than financial markets.

If someone offers to provide you with online financial services you should know who they are.

Markets won’t fail when you fail to exercise proper due diligence over your lenders. But giving up your personal data to the wrong online entity can really mess with your credit rating.

Don’t input your social security number and other sensitive information onto a website unless you can prove to yourself that you’re dealing with a real company. A few thoughts, off the top of my head:

  • Make sure you’re at the company’s actual website. (i.e. you’ve spelled the name correctly)
  • Check to see if the website offers an address for the firm’s headquarters, or a local office.
  • Take a look at the qualifications of the firm’s management team.
  • Check references: see if you know people who have used their services — actual friends, not posts on a website somewhere.
  • Use resources like your local SBA office, or a reference librarian to find the names of reputable companies. (In NYC, check out the tremendous offerings of the Science, Industry and Business Library; it is also a beautiful place to spend time.)
  • Ask your accountant or attorney.

Borrower beware: if it sounds to good to be true, it probably is.

Talk to me!

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