LEI for small business: How can a legal entity identifier help your small business?
According to Fundera, 43% of small businesses applied for a loan last year, with an approval rate of 66%.
According to Oberlo, 54.7 percent of consumers read at least four reviews before buying a product.
And finally, according to a post on Investopedia, Angel investors provide 90 percent of outside funding for startups – $25 billion to 70,000 companies annually.
You’re probably wondering, how do all these relate to the topic you came here for? Well, relax, you’ll soon find out.
Taking a close look at the three stats we referenced, you’ll observe the first relates to BUSINESS LOANS, the second talks about BUSINESS REVIEWS AND CONSUMER TRUST, and the last highlights the significance of ANGEL INVESTORS in business.
You want to know what all three have in common? Each has a connection to LEI – legal entity identifier.
LEI and the key talking points of business
SMALL BUSINESS LOANS
Traditionally, banks, money lenders, credit unions, and other financial institutions only considered key loaning factors such as credit score, credit history, and business status before deciding to loan money to a business.
These days, the game has changed a little bit. Financial institutions are now very careful when lending money to businesses. Many institutions now demand that applicants should showcase enough evidence to prove their legitimacy before their application can be considered.
In most cases, the process of proving your identity may even take longer than the loan application process itself. Harsh, yes, they know. But that’s the safest way to mitigate any risk.
You can blame it on the growing number of cyber crimes, frauds, and impersonation reports.
In the heat of COVID, we heard reports of online scammers hijacking people’s details to file for Small Business Administration (SBA) loans in the U.S. Some of these scammers succeeded, while others failed. In the cases of successful applications, not only does the lender run the risk of losing their money, but the business owner whose identity was used in perpetrating the act may also face some serious financial harm.
As you can see, there’s more to small business loans than meets the eye. And financial institutions are quite aware of this. Unfortunately, in their bid to beef up security, they end up straining applicants (business owners) in the process.
But thankfully, there’s a way you can beat the stress. Simply get yourself an LEI. Also known as legal entity identifiers, this unique identification code is a new method adopted in the global financial space to ascertain the identities of legal entities (businesses).
With an LEI, your business will enjoy the following benefits:
- Quickly access loans while others are made to go through rigorous identity checks:
It is always easier and faster for banks to confirm an entity’s identity using an LEI code than to check numerous files and directories.
- Easily obtain loans from lenders that demand LEI as a part of applicants’ IDs:
Unfortunately, some institutions will deny your application outright if you don’t have an LEI registration. You must get a legal entity identifier number before applying for that not to happen.
- Protect yourself and your business from identity theft:
If a lender or a bank can confirm your identity using a legal entity identifier number, it will be almost impossible for them to disburse money to someone impersonating you.
- Make it easy for international financial institutions to recognize you
Applying for loans within your home country can be straightforward. However, the moment you cross your border, things get bumpy. You can beat the bump by getting a legal entity identifier number. An LEI code is searchable on a global database available online, which means any lender anywhere can look you up and be confident in your legitimacy.
CONSUMER TRUST
Banks and money lenders are not the only ones scared to do business with someone they don’t trust. Even your immediate consumers have the same fears.
If you’ve never fallen victim to a fake vendor or an unscrupulous supplier before, I’m sure someone you know has. Consumer purchase theft is one issue that has plagued the business world for many generations.
And the invention of the internet has made things a lot harder. Nowadays, you can order a simple item online, and then when it’s time to get your products, the vendor will go MIA. SCAM ALERT!!!
Many consumers have experienced this, so they’re scared of patronizing random brands online.
A few years back, New York Times published an article with the title: “WELCOME TO THE ERA OF FAKE PRODUCTS.”
That’s telling you the extent of fraud, fake, and unscrupulous businesses out there.
The question then is, how can you prove to prospective consumers – especially the ones in foreign countries who discovered your brand via Google/social media – that your brand is legit and credible?
Get a legal entity identifier number. Yes, LEI… LEI… LEI.
Although LEIs are more popular in the financial space, they can help prove your legitimacy in any industry.
At its core, an LEI is an alpha-numeric code based on the ISO 17442 standard developed by the International Organization for Standardization (ISO). Any business that has a legal entity identifier is more or less ISO-certified.
What this means is that it’s a reputable means of identification.
Any consumer with fears or trust issues can be convinced of your legitimacy with your LEI code. And if anyone wishes to see proof, you can point them in the direction of the GLEIF site – a foundation tasked to support the implementation and use of the LEI FAQ (LEI). There, they will find proof of your legitimacy.
What about consumers who don’t know anything about LEIs?
Indeed, the concept of legal entity identifier can be alien to some people. And in that case, showcasing your LEI status may not seem like a logical thing to do. But guess what? You can still use it. Even though someone doesn’t know about LEI, they can be enlightened.
I didn’t know the meaning, let alone the significance of BBB (Better Business Bureau), until an online vendor used it to affirm their legitimacy.
INVESTORS
Business investments can come in a lot of ways. But one of the most common is angel investment – good Samaritans who gift you money in exchange for a certain return or business equity.
If you’re lucky to meet an angel investor in person or because someone networked you with them, they may have little reasons to doubt your legitimacy and intentions.
However, what about a scenario where you meet them online, say on Twitter. How do you convince them it’s you (the real business owner) who’s talking to them?
Make a video call, send signed documents, get someone to vouch for you, or offer up classified information only you can have access to?
Well, none of that will be enough to convince some investors. Some investors can be quite distrusting that the only way you can make them believe you is to show proof like LEI ownership.
With an LEI number, you might be able to win distrustful investors faster than you can imagine. For these kinds of investors, being able to look up your business on independent platforms like the GLEIF site is all they need to confirm your legitimacy.
Conclusion
There are many other ways a legal entity identifier number can benefit your business, including helping you to facilitate business partnerships at the local and international levels.
Indeed, your business can benefit a great deal from getting its own LEI code. Don’t wait until tomorrow; get one today.