Reducing risk through blended credit profiles
Tags: Business Information, Small Business, Customer Acquisition
Using company versus owner credit histories to determine small-business credit risk.
Many lenders have tended to see small businesses and small-business owners as one and the same, their funds so frequently commingled as to make the two entities virtually indistinguishable. However, this strategy is not always successful. A business owner with good personal credit still can have a failing company, and someone whose personal credit is messy still can own a successful business. This begs the question is the credit risk with the business owner or the business? To help answer that question Experian analyzed credit profiles for businesses that survived the Great Recession. We took a random sampling of 80,000 small businesses and their owners who were in good financial health as of March 2010 and then tracked their credit behavior through September 2013. This whitepaper discusses the methodology and the surprising results.