Character-based lending seeks to remedy lending biases, particularly across business loans.
The Financial Education Group’s founder, Chris Longworth, was recently sought out by the respected publication, Business Insider, and he provided answers that they featured in their article, “What Is Character-Based Lending?”
Because Black and Hispanic consumers are more likely to have subprime credit scores or no credit scores at all, character-based lending was developed to provide a solution to systemic credit discrimination and empower underserved communities to reclaim control. The five C’s of credit refer to the key factors lenders consider when evaluating your creditworthiness: character, capacity, capital, collateral, and conditions.
As financial educator Chris Longworth says, the character-based approach can be particularly valuable in small business lending. “It takes into account the prospect’s status in the community,” Longworth says. “It looks at their contributions to the community and how they positively or negatively impact the community and the other businesses around them.”
Accessing funds can be a major hurdle for many small business borrowers, especially those who lack collateral or have faced intentional discrimination. Longworth suggests that character-based lending can be the solution needed to help borrowers overcome these challenges.
Chris says that character-based lending benefits not only borrowers but lenders as well. “Character-based lending can enhance lenders’ presence in the community overall and provide jobs and services to the area it serves,” Longworth says. “This can be very beneficial from a public relations standpoint for any lender.”
If you’re struggling to secure business financing through traditional banks, Community Development Financial Institutions (CDFIs) in your area may offer character-based loan programs to help you obtain the capital you need to expand your venture. These lenders aim to provide fair and responsible financing to underserved communities that traditional banks often overlook or discriminate against. Nonprofit organizations like MORTAR, Native Women Lead, and ConnectUP! Institute, can also be excellent resources for business owners looking for financial assistance.
Read the full story and learn more here: https://www.businessinsider.com/personal-finance/what-is-character-based-lending