Tag: small business

  Many small businesses in the hardest-hit states missed out on the first round of federal relief through the recently created Paycheck Protection Program (PPP). The Coronavirus Aid, Relief, and Economic Security (CARES) Act established the PPP in order to disburse $349 billion in forgivable loans to small businesses hurt by the COVID-19 outbreak. However, the program’s funding limit and first-come, first-serve method for accepting loan applications put an immense strain on the financial institutions tasked with getting the money out the door. This resulted in many small businesses unable to get their applications submitted, approved, and funded before the program ran out of money after only two weeks. Where did the money go? The latest data from the Small Business Administration shows that the most populous states received the largest number of PPP loans. This is unsurprising, as states with higher populations tend to have a greater number of small businesses. One way to get a better picture of the impact of PPP loans on communities is to examine what percentage of a state’s small businesses received PPP loans (Figure 1). When viewed through this lens, the results are a quite striking - many of the coastal areas and larger markets missed out, while the rural, north-central states won out. Less than 4% of small businesses in California, Florida, and New York – three of the top five largest markets – were approved for PPP loans. While more than 12% of small businesses in North Dakota, Nebraska, and South Dakota received support.       What happened? There are several factors that could have played a part in the uneven distribution of PPP loans. One explanation may be that some financial institutions in highly populated urban areas did not have the capacity to process such a large volume of loan applications in such a short amount of time. There may also be an urban-rural divide to how relationship banking occurs. Rural communities and small businesses with close-knit ties to area financial institutions may have had easier access to getting their PPP applications submitted and approved. In line with this, Figure 2 shows the top five and bottom five states in terms of financial institutions (banks and credit unions) per 100,000 people. The states with the highest prevalence of financial institutions were also the top states for PPP small business loan share. While the states with the lowest prevalence of financial institutions were the states with the smallest share. Another factor may have been the extent that shelter-in-place rules were being enforced. North Dakota, Nebraska, and South Dakota – the three top states for loan share – are part of the handful of states that still do not have statewide lockdowns. California, on the other hand, was the first state in the country to issue shelter-in-place measures. Why it matters The first round of stimulus through the Paycheck Protection Program provided relief for many small businesses around the country. However, the first-come, first-serve method of distributing loans may have resulted in some small business communities having easier access to the program than others. Insights as to why these differences occurred and why small businesses in the larger markets received a lower share of PPP loans can inform future stimulus efforts and ensure that recovery among the states is as even and broad as possible.   Figure 1 Sources: Small Business Administration Paycheck Protection Program Report 4/16/2020, Census Bureau SUSB and NES Statistics. Author’s calculations. Figure 2 Sources: Experian data on financial institutions, Census Bureau population estimates. Author's calculations.

With new legislation, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act impacting how data furnishers will report accounts, and government relief programs offering payment flexibility, data reporting under the coronavirus (COVID-19) outbreak can be complicated. Especially when it comes to small businesses, many of which are facing sharp declines in consumer demand and an increased need for capital. As part of our recently launched Q&A perspective series, Greg Carmean, Experian’s Director of Product Management and Matt Shubert, Director of Data Science and Modelling, provided insight on how data furnishers can help support small businesses amidst the pandemic while complying with recent regulations. Check out what they had to say: Q: How can data reporters best respond to the COVID-19 global pandemic? GC: Data reporters should make every effort to continue reporting their trade experiences, as losing visibility into account performance could lead to unintended consequences. For small businesses that have been negatively affected by the pandemic, we advise that when providing forbearance, deferrals be reported as “current”, meaning they should not adversely impact the credit scores of those small business accounts. We also recommend that our data reporters stay in close contact with their legal counsel to ensure they follow CARES Act guidelines. Q: How can financial institutions help small businesses during this time? GC: The most critical thing financial institutions can do is ensure that small businesses continue to have access to the capital they need. Financial institutions can help small businesses through deferral of payments on existing loans for businesses that have been most heavily impacted by the COVID-19 crisis. Small Business Administration (SBA) lenders can also help small businesses take advantage of government relief programs, like the Payment Protection Program (PPP), available through the CARES Act that provides forgiveness on up to 75% of payroll expenses and 25% of other qualifying expenses. Q: How do financial institutions maintain data accuracy while also protecting consumers and small businesses who may be undergoing financial stress at this time? GC: Following bureau recommendations regarding data reporting will be critical to ensure that businesses are being treated fairly and that the tools lenders depend on continue to provide value. The COVID-19 crisis also provides a great opportunity for lenders to educate their small business customers on their business credit. Experian has made free business credit reports available to every business across the country to help small business owners ensure the information lenders are using in their credit decisioning is up-to-date and accurate. Q: What is the smartest next play for financial institutions? GC: Experian has several resources that lenders can leverage, including Experian’s COVID-19 Business Risk Index which identifies the industries and geographies that have been most impacted by the COVID crisis. We also have scores and alerts that can help financial institutions gain greater insights into how the pandemic may impact their portfolios, especially for accounts with the greatest immediate exposure and need. MS: To help small businesses weather the storm, financial institutions should make it simple and efficient for them to access the loans and credit they need to survive. With cash flow to help bridge the gap or resume normal operations, small businesses can be more effective in their recovery processes and more easily comply with new legislation. Finances offer the support needed to augment currently reduced cash flows and provide the stability needed to be successful when a return to a more normal business environment occurs. At Experian, we’re closely monitoring the updates around the coronavirus outbreak and its widespread impact on both consumers and businesses. We will continue to share industry-leading insights to help data furnishers navigate and successfully respond to the current environment. Learn more About Our Experts Greg Carmean, Director of Product Management, Experian Business Information Services, North America Greg has over 20 years of experience in the information industry specializing in commercial risk management services. In his current role, he is responsible for managing multiple product initiatives including Experian’s Small Business Financial Exchange (SBFE), domestic and international commercial reports and Corporate Linkage. Recently, he managed the development and launch of Experian’s Global Data Network product line, a commercial data environment that provides a single source of up to date international credit and firmographic information from Experian commercial bureaus and Tier 1 partners across the globe. Matt Shubert, Director of Data Science and Modelling, Experian Data Analytics, North America Matt leads Experian’s Commercial Data Sciences Team which consists of a combination of data scientists, data engineers and statistical model developers. The Commercial Data Science Team is responsible for the development of attributes and models in support of Experian’s BIS business unit. Matt’s 15+ years of experience leading data science and model development efforts within some of the largest global financial institutions gives our clients access to a wealth of knowledge to discover the hidden ROI within their own data.  

Would you hire a new employee strictly by their resume? Surely not – there’s so much more to a candidate than what’s written on paper. With that being said, why would you determine your consumers’ creditworthiness based only on their traditional credit score? Resumes don’t always give you the full picture behind an applicant and can only tell a part of someone’s story, just as a traditional credit score can also be a limited view of your consumers. And lenders agree – findings from Experian’s 2019 State of Alternative Credit Data revealed that 65% of lenders are already leveraging information beyond the traditional credit report to make lending decisions. So in addition to the resume, hiring managers should look into a candidate’s references, which are typically used to confirm a candidate’s positive attributes and qualities. For lenders, this is alternative credit data. References are supplemental but essential to the resume, and allow you to gain new information to expand your view into a candidate – synonymous to alternative credit data’s role when it comes to lending. Lenders are tasked with evaluating their consumers to determine their stability and creditworthiness in an effort to prevent and reduce risk. While traditional credit data contains core information about a consumer’s credit data, it may not be enough for a lender to formulate a full and complete evaluation of the consumer. And for over 45 million Americans, the issue of having no credit history or a “thin” credit history is the equivalent of having a resume with little to no listed work experience. Alternative credit data helps to fill in the gaps, which has benefits for both lenders and consumers. In fact, 61% of consumers believe adding payment history would have a positive impact on their credit score, and therefore are willing to share their data with lenders. Alternative credit data is FCRA-compliant and includes information like alternative finance data, rental payments, utility payments, bank account information, consumer-permissioned data and full-file public records. Because this data shows a holistic view of the customer, it helps to determine their ability to repay debts and reveals any delinquent behaviors. These insights help lenders to expand their consumer lending universe– all while mitigating and preventing risk. The benefits can also be seen for home-based and small businesses. Fifty percent of all US small businesses are home-based, but many small business owners lack visibility due to their thin-file nature – making it extremely difficult to secure bank loans and capital to fund their businesses. And, younger generations and small business owners account for 58% of business owners who rely on short term lending. By leveraging alternative credit data, lenders can get greater insights into a small business owner’s credit profile and gauge risk. Entrepreneurs can also benefit from this information being used to build their credit profiles – making it easier for them to gain access to investment capital to fund their new ventures. Like a hiring manager, it’s important for lenders to get a comprehensive view to find the most qualified candidates. Using alternative credit data can expand your choices  – read our 2019 State of Alternative Credit Data Whitepaper to learn more and register for our upcoming webinar. Register Now

When financial planners and tax advisors meet with clients to review their portfolios, chances are they don't go over their credit reports often. Maybe they never do. Kiplinger’s estimates less than half of professional financial advisors take the time to review credit reports with clients. But taking this step is critical to understanding a person’s complete financial situation and creating a realistic plan. Prepare for Future Opportunities Clients may have all the credit they need at the moment, but if their credit score is mediocre or low, they might end up paying for it in the future. Just when they want to refinance a loan, buy more insurance, apply for a dream job or buy a business, they may discover their credit score is an obstacle. Check for Errors                    Credit bureaus collect billions of data points from millions of businesses each year, and it’s important to check a credit report for accuracy. If there are errors in a client’s file, he or she may be unfairly penalized. Keep in mind that nearly every company checks credit reports to determine who to do business with. Potential employers, business partners and insurance companies give credit files a look before deciding whether or not to make an offer to a person. Awareness Mistakes aren't the only factor leading to a low credit score. Too many hard inquiries, a maxed-out credit card or a number of small loans that could be paid off all cost credit points. Reviewing a credit report is a great way to help clients see the real impact their habits have on their financial life, and they could realize a significant rise in their credit score with little effort. Stand Out in the Crowd Even if a person has an exceptional credit report, a financial or tax advisor will gain credibility by reviewing their information with them. Doing so demonstrates out-of-the-box thinking and concern for a person’s financial health. Let's see a robo-advisor do this. Financial professionals can easily and securely review their clients’ credit reports online. Ready to understand your client’s complete financial situation? Try out our online solution at no cost to you. Interested in integrating with your existing financial or tax planning software? Learn more about integration options with Experian’s API.

A recent study shows that small-business credit conditions remained relatively unchanged in Q1 2016, as delinquency and bankruptcy rates held steady at low levels. 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. Gaining deeper insight into the health of small businesses is important for both lenders and small-business owners. Experian® provides market-leading tools that enable small businesses to find new customers, process new applications, manage customer relationships and collect on delinquent accounts. >> Q1 2016 report  

What difference does $4.40 make? It can’t buy you much on its own, but it can make a world of difference when you’re handling the aftermath of a data breach or other cyberattack. That’s how much cyber insurance protection reduces the per-record cost of a data breach, according to the Ponemon Institute’s 2015 Cost of a Data Breach report. Whether you’re a small business owner with just a few hundred customers or a global corporation with records in the millions, the cost of being without cyber insurance in the wake of an incident can be extreme. When you consider the sheer number of records involved in recent mega-breaches — more than 78 million in the Anthem breach alone — the cost reduction can easily soar into hundreds of million dollars saved. And while smaller businesses may have fewer records to be breached, the impact of an attack can be even more devastating to them than to global entities when they experience a mega-breach. Yet less than one-third (32 percent) of businesses surveyed for Ponemon’s study reported having cyber insurance. The percentage was a bit better when the Risk Management Society (RIMS) asked 284 of its members about cyber insurance; 51 percent reported having stand-alone cyber insurance policies. Even fewer small businesses report having cyber insurance. Just 5 percent of small business owners surveyed by Endurance International Group said they carried cyber insurance, despite 81 percent believing cybersecurity is a concern for small business. Those who have cyber insurance clearly understand its value. RIMS members said they bought policies to: Reduce the risk of an incident damaging their company’s reputation (79 percent). Minimize the potential impact of business interruption (78 percent). Aid in data breach response and notification (73 percent). What’s more, of the RIMS members who didn’t have cyber insurance, 74 percent said they were considering buying it within the next 12–24 months. While small business owners also appear aware of the risk, they seem less cognizant of the benefits of cyber insurance and other cybersecurity measures. Endurance found that although 94 percent of small business owners said they do think about cybersecurity issues, and nearly a third have experienced an attack or an attempt, just 42 percent have invested in cybersecurity in the past year. A widely reported study by the National Cyber Security Alliance asserts that 60 percent of small businesses that experience a data breach go out of business within six months. Cyber insurance premiums vary widely and are largely tied to a company’s revenues and exposure. Policies typically aim to address risks commonly associated with a cyberattack, including: Liability for loss of confidential information that occurs through unauthorized access to a company’s computer systems. Data breach costs including notification of affected consumers, customer support and providing credit monitoring to affected customers. The costs of restoring, improving or replacing compromised technologies. Regulatory compliance costs. Business interruption expenses. Of course, like virtually any other type of insurance, cyber insurance policies can be customized to address the risks facing the individual policy holder. Many in the insurance industry feel that cyber insurance products have matured, evolving into a type of protection that businesses both large and small simply can’t afford to do without. When you consider the devastating risk of facing a cyberattack without insurance, that simple per-record cost savings of just $4.40 takes on a much deeper meaning. While more large companies are seeing the value of cyber insurance, small business owners need to begin incorporating this valuable type of protection into their overall cyber security plans. Learn more about our Data Breach solutions

The Responsible Business Lending Coalition, a group of nonbank small-business lenders, recently announced a regulatory program designed to bring greater clarity to the industry’s pricing and consumer protections, including: The right to transparent pricing and terms The right to non-abusive products The right to responsible underwriting The right to fair treatment from brokers The right to inclusive credit access The right to fair collection practices Industry self-regulation is a good way for market leaders to demonstrate self-discipline and is preferable to legislative or regulatory changes because of its flexibility and ability to accommodate evolving market trends. >> Webinar: Online Marketplace Lending

Understanding shelf companies and shell companies In our world of business challenges with revenues level or trending down and business loans tougher than ever to get, “shelf” and “shell” companies continue to be an easy option for business opportunities. Shelf companies are defined as corporations formed in a low-tax, low-regulation state in order to be sold off for its excellent credit rating. Click on the internet and you will see a plethora of vendors selling companies in a turn-key business packages. Historically off-the-shelf structures were used to streamline a start-up, where an entrepreneur instantly owns a company that has been in business for several years without debt or liability. However, selling them as a way to get around credit guidelines is new, making them unethical and possibly illegal. Creating companies that impersonate a stable, well established companies in order to deceive creditors or suppliers in another way that criminals are using shelf companies for fraudulent use. Shell companies are characterized as fictitious entities created for the sole purpose of committing fraud. They often provide a convenient method for money laundering because they are easy and inexpensive to form and operate. These companies typically do not have a physical presence, although some may set up a storefront. According to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, shell companies may even purchase corporate office “service packages” or “executive meeting suites” in order to appear to have established a more significant local presence. These packages often include a state business license, a local street address, an office that is staffed during business hours, a conference room for initial meetings, a local telephone listing with a receptionist and 24-hour personalized voice mail. In one recent bust out fraud scenario, a shell company operated out of an office building and signed up for service with a voice over Internet protocol (VoIP) provider. While the VoIP provider typically conducts on-site visits to all new accounts, this step was skipped because the account was acquired through a channel partner. During months one and two, the account maintained normal usage patterns and invoices were paid promptly. In month three, the account’s international toll activity spiked, causing the provider to question the unusual account activity. The customer responded with a seemingly legitimate business explanation of activity and offered additional documentation. However, the following month the account contact and business disappeared, leaving the VoIP provider with a substantial five figure loss. A follow-up visit to the business showed a vacant office suite. While it’s unrealistic to think all shelf and shell companies can be identified, there are some tools that can help you verify businesses, identify repeat offenders, and minimize fraud losses. In the example mention above, post-loss account review through Experian’s BizID identified an obvious address discrepancy – 12 businesses all listed at the same address, suggesting that the perpetrator set up numerous businesses and victimized multiple organizations.  It is possible to avoid being the next victim and refine and revisit your fraud best practices today. Learn more about Experian BizID and how to protect your business.

While an influx of small businesses opened during the height of the recession, a recent Experian study found that between 2010 and 2014, small-business start-ups decreased by nearly 45%.

Following a full year of steady improvement, small-business credit conditions stumbled during the first quarter of 2014.

Small-business credit conditions wrapped up the year by showing continued improvement for the fourth consecutive quarter.

The credit appetite for small businesses is strong and growing. Total outstanding balances have risen at their fastest rate in two years, and delinquency rates have fallen at a consistent pace. Only 10 percent of outstanding small-business credit balances were past-due in Q3 — the lowest level of delinquency seen since the recovery began. While this is an encouraging sign, it is important to note that these improvements have come at the cost of hiring new employees and investments. Sign up for the Quarterly Business Credit Review Webinar on Dec. 10 Source: Download the full Experian/Moody’s Analytics Small Business Credit Index report.

Small-business credit conditions strengthened in Q2 2013, lifting the Experian/Moody's Analytics Small Business Credit Index 2.8 points to 111.7 - the highest level since it began tracking. Consumer spending growth was modest, but steady and consumer confidence is at multiyear highs. This is a reassuring signal that consumer spending is unlikely to backtrack in the near future. Furthermore, credit quality improved for every business size, with the total share of delinquent dollars 2.4 percentage points lower than a year ago and at the lowest point on record.

Small-business credit conditions improved in Q1 2013, reversing much of the deterioration seen during Q4 2012. The Q1 rise was fueled primarily by falling delinquency rates in every segment compared with a year earlier. The total share of delinquent dollars was 11.2 percent for Q1 2013 - 1.4 percentage points lower than a year ago.

By: Joel Pruis Part I – New Application Volume and the Business Banker: Generating small business or business banking applications may be one of the hottest topics in this segment at this time. Loan demand is down and the pool of qualified candidates seems to be down as well. Trust me, I am not going to jump on the easy bandwagon and state that the financial institutions have stopped pursuing small business loan applications. As I work across the country, I have yet to see a financial institution that is not actively pursuing small business loan applications. Loan growth is high on everyone’s priority and it will be for some time. But where have all the applicants gone? Based upon our data, the trend in application volume from 2006 to 2010 is as follows: Chart displays 2010 values: So at face value, we see that actually, overall applications are down (1,032 in 2006 to 982 in 2010) while the largest financial institutions in the study were actually up from 18,616 to 25,427. Furthermore the smallest financial institutions with assets less than $500 million showed a significant increase from 167 to 276. An increase of 65% from the 2006 levels! But before we get too excited, we need to look a little further. When we are talking about increasing application volume we are focusing on applications for new exposure or a new extension of credit and not renewals. The application count in the above chart includes renewals. So let’s take a look at the comparison of New Request Ratio between 2006 and 2010. Chart displays 2010 values: So using this data in combination with the total application count we get the following measurements of new application volume in actual numbers. So once we get under the numbers, we see that the gross application numbers truly don’t tell the whole story. In fact we could classify the change in new application volume as follows: So why did the credit unions and community banks do so well while the rest held steady or dropped significantly? The answer is based upon a few factors: In this blog we are going to focus on the first – Field Resources. The last two factors – Application Requirements and Underwriting Criteria – will be covered in the next two blogs. While they have a significant impact on the application volume and likely are the cause of the application volume shift from 2006 to 2010, each represents a significant discussion that cannot be covered as a mere sub topic. More to come on those two items. Field Resources pursuing Small Business Applications The Business Banker Focus. Focus. Focus. The success of the small business segment depends upon the focus of the field pursuing the applications. As we move up in the asset size of the financial institution we see more dedicated field resources to the Small Business/Business Banking segment. Whether these roles are called business bankers, small business development officers or business banking specialists, the common denominator is that they are dedicated to the small-business/ business banking space. Their goals depend on their performance in this segment and they cannot pursue other avenues to achieve their targets or goals. When we start to review the financial institutions in the less than $20B segment, the use of a dedicated business banker begins to diminish. Marketing segments and/or business development segmentation is blurred at best and the field resource is better characterized as a Commercial Lender or Commercial Relationship Manager. The Commercial Lender is tasked with addressing the business lending needs across a particular region. Goals are based upon total dollars generated and there is no restriction outside of the legal or in house lending limit of the specific financial institution. In this scenario, the notion of any focus on small business is left to the individual commercial lender. You will find some commercial lenders that truly enjoy and devote their efforts to the small business/business banking space. These individuals enjoy working with the smaller business for a variety of reasons such as the consultative approach (small businesses are hungry for advice while the larger businesses tend to get their advice elsewhere) or the ability to use one’s lending authority. Unfortunately while your financial institution may have such commercial lenders (one’s that are truly working solely in the small business or business banking segment) to change that individual’s title or formally commit them to working only in the small business/business banking segment is often perceived as a demotion. It is this perception that continues to hinder the progress of financial institutions with assets between $500 million and $20 billion from truly excelling in the small business/business banking space. Reality is that the best field resource to generate the small business/business banking application volume available to your financial institution is through the dedicated individual known as the Business Banker. Such an individual is capable of generate up to 250 applications (for the truly high performing) per year. Even if we scale this back to 150 applications in a given year for new credit volume at an average request of $106,929 (the lowest dollar of the individual peer groups), the business banker would be generating total application dollars of $16,039,350. If we imply a 50% approval/closure rate, the business banker would be able to generate a total of $8,019,675 in new credit exposure annually. Such exposure would have the potential of generating a net interest margin of $240,590 assuming a 3% NIM.   Not too bad.