Building financial capability and improving access to credit is essential for economic growth in our country. This is especially true for entrepreneurs, many of whom rely on their personal consumer credit standing when applying for a loan for keeping their small businesses strong or for a capital injection to expand their operations.
While commercial lending has made a steady increase since the height of the recent economic recession, a recent report from Experian finds that women business owners continue to trail their male counterparts when it comes to commercial and consumer credit scores.
Gender gap in access to both commercial and consumer credit
The findings make clear that a gender gap exists in both commercial and consumer credit files:
- The average commercial credit score for a woman-owned business is 34, while the average score for a male-owned business is 35;
- The average consumer credit score for women business owners is 689, compared to 699 for male business owners;
- More than 22 percent of male-owned businesses have at least one open commercial trade line, while the same can be said for only 18.5 percent of women-owned businesses;
- In the last 24 months, female business owners had an average of 1.3 personal accounts become 90-plus days past due, while male business owners had an average of .9 go delinquent.
This has a direct and quantifiable impact on the bottom lines for women-owned businesses. For example, Experian’s analysis found that more than 24 percent of male-owned businesses have sales that exceeded $500,000, while only 14.5 percent of women-owned businesses see sales of that size. In addition, 21.2 percent of male business owners have a personal income of $125,000 or greater, compared to just 17.4 percent of women business owners.
Policymakers recognize the need to improve credit access for women-owned businesses
Developing sound public policy to improve access to credit — especially for women and minority-owned business owners — is a top priority for policymakers in Washington, DC.
In July 2014, then-Senate Small Business Committee Chair Maria Cantwell (D-Wash.) released a report, entitled “21st Century Barriers to Women’s Entrepreneurship.” The report took a wide-ranging look at some of the challenges that women face in starting a business. In particular, it found that “$1 of every $23 in conventional small business loans goes to a woman-owned business.”
Look for legislative proposals to aide small business owners
Look for Congress to continue to discuss policy proposals aimed at increasing access to fair and affordable credit for consumers and small business owners alike.
One such proposal that has garnered bipartisan support would make it easier for utilities and telecommunication providers to report positive, on-time credit data to the nation’s credit bureaus. While they have long made pricing decisions based upon the full-file credit data furnished by traditional creditors, like lenders and retailers, telecommunication and utility companies have historically only furnished derogatory data, such as when an account is in collection. Including both positive and negative data from these sources will enable tens of millions of thin-file consumers — and small business owners — with a proven record of meeting monthly financial obligations to access fair and affordable credit.
Experian welcomes the opportunity to work with policymakers to help improve access to fair and affordable credit for consumers and small business owners alike.
Resources for business owners
Understanding and monitoring their company’s business credit profile to ensure it is in good standing is essential for small-business owners to gain access to necessary capital. With the insights that business credit reports provide, small-business owners can take the appropriate actions necessary that will positively impact their business. Experian provides some helpful resources to help small-business owners gauge the health of their business, including:
- BusinessCreditFacts.com — An authoritative source for understanding and learning about the benefits of managing business credit. Visit http://www.businesscreditfacts.com.
- Experian Business Credit — A site that enables small-business owners to access a copy of their business credit report as well as understand the impact that maintaining a positive credit profile can have on a small business. Visit http://www.experian.com/businesscreditreport.
- Business Score Planner™ — An education tool for business owners to understand how financial plans and changes to commercial credit information can impact a business credit score. Visit http://sbcr.experian.com/scoreplanner.