Small Business Credit Insights

Today Experian released the Q4 2016 Experian/Moody's Analytics Main Street Report. The report offers deep insight into the overall financial well-being of the small-business landscape, as well as providing commentary around what certain trends mean for credit grantors and the small-business community as a whole. Delinquency Rates Decline Sharply Small business delinquency rates fell throughout 2016 at a slower pace compared to 2015. Q4 saw a sharp decline in delinquency across multiple industry sectors. Oil pricing may be what's drivingThis was likely due in part to OPEC's announcement to cut supply over the next several months. Small Businesses Feeling Confident as Balances Increase Q4 loan balances increasing 7.7 percent from the third quarter and 10.3 percent from last year. Despite this activity, utilization remains below 40 percent, leaving plenty of capacity for businesses to expand using available credit. Business sentiment among business owners remains positive with the National Federation of Independent Business Owners reporting a sharp increase in small-business owner confidence in November and December. Nevada Roars Back Nevada was particularly hard-hit during the Great Recession. Small businesses in the state have struggled with credit ever since. In the fourth quarter Nevada's severe delinquency rate fell to 8.94 percent, the lowest level observed in the available history for the state. Eight of eleven industries in Nevada saw delinquency rates decline from the third quarter of 2016. Experian has published the contents of our report in an interactive web page, complete with interactive charts and graphs.      

We know that small business is the heart of the U.S. economy, driving the majority of private-sector employment. But just how successful in managing credit is the average small business owner compared with the average consumer?  In a new data study titled The Face of Small Business, Experian examines key credit and demographic attributes of both groups and uncovered distinct differences. Experian presented the full research from our data study in a webinar recently. Watch Webinar Experian took a random sample of 2.5 million small businesses and 1 million consumers to base the research. Findings show that small-business owners outpace consumers when it comes to credit management. For example, the average personal credit score for a small-business owner is 721 — 48 points higher than the average consumer score of 673. Small-business owners also have a higher amount of available credit, with an average credit limit of $56,100; while consumers have an average credit limit of $26,900. Debt load, however, is also higher for small-business owners, with the average total balance of all trades being $195,000 versus $96,000 for consumers. Small business owners have higher monthly payment obligations with an average payment of $2,032 compared to $954 for consumers. Despite these differences, only a relatively small percentage of small-business owners (5.9 percent) have one or more revolving bankcard trades that are 90-plus days beyond terms in the past 24 months compared with 7 percent of consumers. Download our Infographic “Since the health of small business tells the tale of how the overall economy is performing, it is encouraging to see that while small-business owners have an exceptional amount of credit available to them and carry a higher debt load, they have done a great job managing their payment obligations and keeping utilization low. In order to explore possibilities and pursue opportunities, consumers and small-business owners alike need to master the credit management skills that will allow them to achieve their dreams — whether that dream is to start or expand a business or to finance a new home or vehicle.” Pete Bolin Director of Consulting and Analytics Experian Demographic differences In terms of demographic characteristics, small-business owners are more likely to own a home and have a higher income than the average consumer. For example, the average income for small-business owners is $91,600 versus $70,400 for consumers. Also, 62 percent of small business owners own a home compared with only 47 percent of consumers. Small-business owners tend to be a bit older and are more likely to have pursued higher education than the average consumer. The average age of a small-business owner is 56, and the average age of a consumer is 51. From an education perspective, 68.6 percent of small business owners have attended some college and beyond, while only 53.5 percent of consumers have done so. Other highlights from the report: The average mortgage balance for small-business owners is $192,000 versus $147,000 for consumers. The average number of open trades for small-business owners is 7.4 versus 4.4 for consumers. The balance-to-limit ratio for small-business owners is 29.5 percent compared with 30.1 percent for consumers. A higher percentage of small-business owners are married, with 68.3 percent having tied the knot versus 53.4 percent of consumers. The average gender breakdown for small-business owners is 65.6 percent male and 31.2 percent female. For consumers the mix is more equal, with 46.4 percent female and 47 percent male.

Latest Main Street Report findings offer cautious optimism as small business bankruptcy rates and delinquencies decline Experian has released the Q2 2016 Experian/Moody's Analytics Main Street report. The report offers a unique quarterly snapshot into the health of small business credit in the United States. The report states current credit conditions for small businesses are improving across most of the country. Overall small-business delinquencies decreased slightly from last quarter, with dropping levels in every stage of delinquency. The total bankruptcy rate fell as well, although at a slower pace than the previous year. "Small business owners have done a great job of managing their financial commitments and paying their bills on time over the past few quarters. This has led to an increased level of available capital which could enable them to expand or invest in their business to grow their enterprise. It will be very interesting, however, to watch the current trends unfold throughout the rest of the year as administration and potential policy changes, as well as the impact of Brexit and other global events could affect U.S. business behavior." Gavin Harding Sr. Business Consultant, Experian "Small businesses are doing well, and their near-term prospects are good. Delinquencies and bankruptcies are steadily declining, reflecting solid sales, low interest rates, and generally light debt loads. The only blemish is for businesses in the still struggling energy and related industries." Mark Zandi Chief Economist, Moody's Analytics   While current conditions enable small businesses to have an abundance of credit available to them, the average utilization rate was down almost 22 percent from the same period in 2015. The report found that this decline is the result of a slight increase in credit limits and a steady increase in balances. Other Q2 2016 highlights: The mining industry experienced the sharpest increase in severe delinquencies and bankruptcies across all industries in the second quarter. The transportation and utility industries also experienced a decline, with the average severe delinquency rate increasing by 30 basis points during the quarter. Construction has seen the strongest improvement, with severe delinquencies dropping by nearly one third in the last year and a half. Construction bankruptcy rates, however, remain high in West Virginia and New Mexico, with rates of 0.59 percent and 0.44 percent, respectively. Bankruptcy rates along the Eastern Seaboard tend to be below the national average. About the Experian/Moody's Analytics Main Street Report Developed by Experian and Moody’s Analytics, the Experian/Moody’s Analytics Main Street Report brings deep insight into the overall financial well-being of the small-business landscape, as well as provides commentary around what certain trends mean for credit grantors and the small-business community as a whole. Key factors comprised by the Main Street Report include a combination of business credit data (credit balances, delinquency rates, utilization rates, etc.) and macroeconomic information (employment rates, income, retail sales, investments, etc.)  

Experian Business Information Services and Moody’s Analytics have joined forces to develop the Experian/Moody’s Analytics Main Street Report.  The report leverages a combination of business credit data (including credit balances, delinquency rates and utilization rates) and macroeconomic data (including employment rates, income, retail sales and investments) to provide a more accurate assessment of the health of small businesses. Small businesses are the engine of the U.S. economy - employing the majority of U.S. workers, so with this quarterly report Experian seeks to provide a unique view into the health of those small businesses, offering a benchmark on their overall financial health, and emerging trends across major industry sectors. “Gaining deeper insight into the health of small businesses is important for credit-granting organizations, as well as the small-business owner. While credit grantors can leverage the information to make more profitable financial decisions, small-business owners can better understand the fluctuations in their industry and region. By working with Moody’s Analytics, we are able to combine our expertise and data resources to deliver a more holistic view of the trends impacting the business community in particular and the economy overall.” Gavin Harding, Sr. Business Consultant Experian, Global Consulting Practice Q1 2016 highlights The first quarter 2016 report shows that credit conditions for small businesses have remained relatively stable, as delinquency and bankruptcy rates hold steady at low levels. In fact, much of the slight decrease in delinquencies was driven by fewer small businesses falling within the 61 to 90 and 91+ days past due categories. Additionally, the Q1 2016 report shows that small businesses have begun to expand their credit lines while keeping their utilization rates down. Through a combination of the increase in credit availability and small gains in balances, the average credit utilization for a small business dropped nearly 17 percent from the previous year. “Small business credit conditions continue to improve, and near-term prospects are good.  Delinquencies and bankruptcies have declined in most industries and regions of the country for more than a year. The energy industry is the only exception. There are threats to the positive small business credit outlook, including prospects for rising interest rates and volatile financial markets, but those threats appear modest.” Mark Zandi, Chief Economist Moody's Analytics   Other Q1 2016 findings: Despite a strong economic performance relative to the rest of the country over the past several years, bankruptcy rates were elevated in the Southwest and the West Delinquency rates for the retail industry ticked up slightly during the first quarter of 2016 as a result of weak retail sales The top three states with the highest average business credit score* were Vermont (62.6), North Dakota (61.8) and South Dakota (61.7) Download Main Street Report

Analysis highlights credit characteristics, industry preferences and demographic attributes of business owners As part of its analytical series on small businesses, Experian®, the leading global information services company, today announced new insights that look at the health of minority-owned small businesses in the U.S.. “Given that minority-owned small businesses make up such a small percentage of the general small business population (approximately 21 percent), industry professionals and regulators are increasingly becoming more interested in helping this segment grow and succeed,” said Pete Bolin, director of consulting and analytics for Experian. “A primary component to accomplish that objective is to educate small business owners on the importance of maintaining a positive credit profile. For example, keeping debt levels low and paying bills in a timely manner can help small business owners better position themselves for growth opportunities.” Findings from the study show that, compared with the overall small business population, minority businesses are slightly behind when ti comes to credit management. For example, the average business credit score* for a minority-owned small business is 49.7, nearly 5 points lower than the general small business population. As a consumer, the average credit score for a minority small business owner is 707, 15 points lower than the overall average of small business owners. In terms of payment behavior, 1.2 percent of minority small business owners had at least one business credit card account severely delinquent (91-plus days), while 8.3 percent had at least one consumer credit card account severely delinquent (90-plus days). Comparatively, 1.1 percent of the general small business owner population had at least one business credit card account severely delinquent, and 6.8 percent had at least one severely delinquent consumer account. Most popular business types Experian’s analysis also identified the most popular industries for minority-owned businesses. The analysis showed that the industry of choice was eating places, which accounted for 7.3 percent of minority-owned businesses, followed by beauty shops (5.8 percent), legal services (2.9 percent), business services (2.7 percent) and real estate (2.5 percent). Regardless of industry, the analysis found that the average consumer income for these business owners was $92,489, which is similar to the general small business owner population which has an average consumer income of $92,338. From an education perspective, 65.6 percent of minority small business owners had at least some college experience, just slightly less than 68.3 percent for the general business population. “Gaining insight into the trends and behaviors of the small-business community is imperative given their importance to the growth and success on our overall economy,” continued Bolin. “While a person’s ethnicity will never be used in a credit decision, understanding the trends of minority-owned small businesses enables credit grantors to help these business owners find the appropriate lending products to expand their establishments and succeed.” Other findings include:   Approximately 7 percent of all minority-owned businesses are based out of the home, while more than 10 percent of the general small business population is home-based More than 31 percent of minority business owners are women Nearly 45 percent of all minority-owned small businesses come from three states: California (23.4 percent); Florida (11.4 percent); Texas (10.1 percent) Minority business owners have an average outstanding business balance of $8,759, while the general business owner population has an average outstanding balance of $9,066   Resources for business owners Understanding and monitoring their business credit profile to ensure it is in good standing is a critical step for small-business owners to gain access to financial capital and grow their establishments.  With the insights that business credit reports provide, small-business owners can take the appropriate actions necessary to positively impact their business. Experian provides some helpful resources to help small-business owners gauge the health of their business, including: BusinessCreditFacts.com - an authorative source for understanding and learning about the benefits of managing business credit. Visit https://www.businesscreditfacts.com. Experian Business Credit - a site that enables small-business owners to access a copy of their business credit report and helps them understand the impact maintaining a positive credit profile can have on a small business. Visit https://www.experian.com/businesscreditreport.  Business Score Planner™ -  an educational tool for business owners to understand how financial plans and changes to commercial credit information can impact a business credit score. Visit https://sbcr.experian.com/scoreplanner.   Methodology The analysis is based on a statistically relevant sampling of data from Experian’s consumer and business credit database from December 2015. Average scores are an average of the sample, and are not representative of national averages of the consumer or small business. Ethnic background was obtained from Ethnic Technologies, a provider of multicultural marketing data, ethnic identification software and ethnic data appending services.    

In 2014 the Subcommittee on Small Businesses and Entrepreneurism published a report that said only 4% of the total dollar amount of business loans go to Women owned businesses. After hearing of this report, Experian Decision Sciences decided to conduct a study of Women Business Owners to see how they were doing. The big "ah ha" moment for us was when we looked at this data and discovered how similar the Men and Women's credit profiles were. The commercial Intelliscore Plus scores were quite similar, the consumer credit scores are very similar, so we wondered why only 4% of small business loans was going to Women. One potential reason why Women might not be getting the credit they deserve on the business side is the credit utilization rate on their consumer credit. Utilization rate is the balance-to-limit ratio, and it tends to be higher for Women owned businesses than it is for Male owned businesses. And that could be a legitimate reason why lenders are perceiving Women owned businesses to be higher risk. Another aspect of our study pertains to the industries Women and Men are working in. Women owned businesses tend to be focused on personal services like beauty shops and child care, while Male owned businesses tend to be focused on industries like general contracting. Why is this important? Because the mix of industries carries different levels of sales amounts. We know that 14.5 percent of Women owned businesses have sales above $500,000 while Male owned businesses have 24 percent that have greater than $500,000 annual sales. It's important for business owners to understand all aspects of their credit, because the more that they understand, the more power they will have when they go in to apply for a loan. We created two Snapshot Infographics for this study which show the differences between Women owned businesses and Male owned businesses.  

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 https://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.