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Press Room April 2014
Credit Scores and Credit Market Outcomes: Evidence from the Survey of Small Business Finances and the Kauffman Firm Survey
Small businesses often struggle to find available credit. Building on previous literature, this research analyzes what factors, including business credit scores, may explain credit outcomes (approvals or denials) for small businesses. It further asks what role business credit scores might play in the credit outcomes of women- and minority-owned small businesses.
Credit Scores. Statistically derived and numerically presented, a “credit score” reflects an individual or entity’s likelihood of repaying a debt. Generally, a higher credit score correlates with a lower probability of default. The consumer credit market has utilized credit scores for decades, but small business credit scores emerged only during the 1990s. Large lenders adopted small business credit scoring in subsequent years.
Evidence indicates the emergence of business credit scoring may have increased credit availability to small businesses. A study of small business loan patterns indicates that banks using business credit scoring may feel able to make riskier loans at the margin and to increase their pool of available credit.
The Minority Business Development Agency (MBDA) promotes the ability of minority business enterprises (MBE) to grow and to participate in the global economy through a range of activities that include funding a network of centers that provide MBEs a variety of business assistance services. Through its direct federal client services and its network of funded centers, MBDA: (1) fosters the expansion of opportunities for minority-owned businesses in the global marketplace; (2) identifies sources of financial capital for minority-owned firms; (3) develops and upgrades electronic tools to provide access to growth markets through automated matching of MBEs to public and private sector opportunities; (4) provides management and technical assistance to minority-owned businesses; and (5) advocates for the increased use of electronic commerce and new technologies by MBEs.
In FY 2015, MBDA will continue to support the national growth and expansion of minority-owned U.S. businesses, with additional focus on minority business enterprise advanced manufacturing and export activity. This additional focus on minority-owned advanced manufacturing and export business activity reflects Department of Commerce strategic priorities for FY 2015.
Alejandra Castillo, Acting National Director, Minority Business Development Agency, U.S. Department of Congress, joined Josh Smith to take an in depth look at how minority businesses are considered the "critical engine" of the business community for economic growth.
She further shares that minority and small businesses must get the "business intelligence" and leverage opportunities for growth in servicing the government at local, state and federal levels, as well as various emerging industries and the global marketplace, to be successful in this arena.