Solely 54% of US small- and medium-sized companies (SMBs) with revenues of lower than $100,000 say they’ve adequate entry to credit score, in keeping with a brand new LexisNexis report.
The report relies on a survey of 305 homeowners and licensed brokers of SMBs who’ve utilized for funding up to now three years or intend to take action within the subsequent three years. Regardless of the numerous scarcity in credit score, homeowners of those smaller SMBs are additionally considerably much less prone to apply for loans than different SMBs: Solely 24% of SMBs with revenues beneath $100,000 utilized for a mortgage up to now three years, in contrast with 53% of SMBs with revenues of over half one million.
This is why these SMBs have been holding off on mortgage functions up to now three years:
- The bulk (66%) of smaller SMBs that have not utilized for loans suppose they will not be accredited. Whereas there’s doubtless quite a lot of the reason why these companies suppose they will be rejected, equivalent to earlier experiences, this notion seems to be nicely based: 47% of smaller SMBs which have utilized for a mortgage up to now three years have been rejected.
- Among the many remaining 34% that have not utilized, the largest barrier cited is an absence of economic credit score historical past. This implies a lack of knowledge from these SMBs in regards to the shifts we have seen within the credit score market lately. A slew of fintechs, like LendingClub, are leveraging applied sciences like AI to beat the constraints offered by standard strategies for figuring out creditworthiness, together with skinny credit score historical past.
That smaller SMBs are struggling to get funding is a serious drawback for the US economic system — however for fintechs that play their playing cards proper, it is an enormous alternative. Within the US, 99.9% of companies are SMBs and virtually 60 million staff, 48% of the entire workforce, are employed by these companies, per knowledge from the Small Enterprise Administration.
As such, guaranteeing that these companies have the capital to assist them scale and proceed working is necessary for the nation’s economic system. But this scarcity of funding, regardless of its negatives for these SMBs, is a boon for fintechs: Gamers like Kabbage, LendingClub, and OnDeck, which have developed different fashions for assessing credit score, can scoop up these underserved companies. Nonetheless, as the information above highlights, it is essential these fintechs get the message throughout that skinny credit score recordsdata aren’t essentially a barrier for mortgage approvals in the event that they need to faucet these gamers.
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