Nav’s Small Business American Dream Gap Report uncovers a significant lack of awareness around information crucial to small businesses accessing capital
New research unveiled by Nav, The Small Business American Dream Gap Report, reveals that nearly half of small businesses are unaware they have a business credit score—a key component to their ability to secure the affordable capital needed to grow their business. The survey also uncovered that in the midst of the market’s focus on providing access to funds, with over forty financing types currently available, small business owners are still compromising personal finances to support business dreams.
“There is a disconnect in the market that is extremely detrimental to small business owners,” said Levi King, Nav co-founder and CEO. “We’re seeing a trend toward laser focus on more paths for access to capital, but this isn’t addressing the root issue. The baseline availability of credit is only valuable if small businesses can access it and secure good interest rates and terms. Managing creditworthiness is vital to success here, and no one’s addressing it.”
The survey, which polled small business owners nationwide, uncovered that despite the increasing number of alternative, online funding sources, 62 percent of small business owners still use personal savings as a go-to resource for funding. Small business owners who intertwine business and personal finances are at a higher risk for damage to both their personal and business credit scores and pose risks to their personal finances if business plans don’t go as expected. Furthermore, this approach prevents business owners from building business credit for future funding options.
When respondents identified the most significant obstacles in the past year, lack of growth (20 percent) and cash flow issues (22 percent) were top challenges. Small business owners also said it’s more difficult to reduce operating costs (29 percent) and plan for unexpected expenses (24 percent) than it was a year ago. These difficulties have kept many small businesses from growing, with more than a quarter of respondents noting that they’ve avoided hiring new employees and expanding their business due to frustration and difficulty accessing funds. Twenty-one percent of respondents said they considered closing their doors during the last year.
At the epicenter of the challenges facing small business owners is a fundamental lack of understanding around business credit scores and how to use a strong business credit profile to their advantage. Among respondents, 45 percent did not know they have a business credit score, 72 percent did not know where to find information on their business credit score and 82 percent didn’t know how to interpret their score.
“I interact with a variety of small business owners daily, from tech start-ups to local restaurant owners. Many have a decent understanding of personal credit, but very few know how business credit works, or that it even exists,” said King. “What we did find through the research is that those who do understand and actively manage their business credit score and finances find the funding process easier to navigate and are more optimistic about potential growth. This understanding empowers small businesses and will help them grow and thrive.”
According to the report, nearly 40 percent of small business owners who don’t know their business credit score envision growth of less than five percent, while nearly three quarters of the small business owners who understand their business credit score envision growth of up to 20 percent. The study also indicates small business owners who understand their business credit scores are 41 percent more likely to be approved when they apply for a business loan. Those who understand their business credit profile also are 31 percent more likely to consider expanding their business.
Nav is the first site that gives small business owners access to both personal and business credit data, as well as insights to help improve business creditworthiness for free. It is the only destination offering access to the FICO® LiquidCredit® Small Business Scoring Service℠ (FICO SBSS score), often called the credit score every small business needs to know. The FICO SBSS score factors in personal credit, business credit and financial business data and is used by banks, credit unions and more than 7,500 lenders across the U.S. as part of the qualification for small business loans. Additionally, the U.S. Small Business Administration uses the FICO SBSS score to pre-screen its 7(a) loan applications under $350,000.
Nav.com and its mobile app give access to easy-to-ready personal and business credit reports, along with actionable advice and monitoring all in one spot. It also provides tools to build business credit and matches users to lending options via a needs-based filter. This all makes it much easier for business owners to get approved for the most appropriate funding, lower their costs and save time.
This article was originally written on August 25, 2015 and updated on September 9, 2022.