New Advocacy Study on Credit Scores and Capital Access

February 5, 2014

pic-money-handsOn Wednesday, Jan. 29, the U.S. Small Business Administration’s (SBA’s) Office of Advocacy (Advocacy) released a study entitled, Credit Scores and Credit Market Outcomes: Evidence from the Survey of Small Business Finances and the Kauffman Firm Survey. Advocacy’s study focused on a number of factors that may impact a small business’s ability to access capital, including credit score. According to the study, results confirmed that:

  • “[S]mall firms with lower credit scores are: (i) more likely to need additional credit because their credit needs have not already been met by past borrowings; (ii) more likely to be discouraged from applying for credit when they report a need for additional credit; and (iii) more likely to be denied credit when they need additional credit and apply for credit.”
  • “[F]irm-lender relationships play a significant role in credit outcomes for small firms,” and
  • “[T]here is no evidence that credit scores reduce the importance of firm-lender relationships.”

The study also found that “the credit market disproportionately denies credit to minority-owned firms when they need and apply for additional credit.”

Small-business owners face a number of unique challenges when trying to obtain capital. According to NSBA’s most recent Access to Capital Survey, 43 percent of respondents said that over the last four years they needed funds and were unable to find any willing sources (i.e. loans, credit cards or investors). According to those respondents, this failure to find capital resulted in 32 percent having to reduce their number of employees, 20 percent having to reduce employee benefits, and 17 percent being unable to meet existing demand.

Access to risk-based capital is a priority for NSBA, and we look forward to working with Congress and the Administration to address the issue.