36%. That’s the percentage of small-business owners who get a “no” from creditors because of their credit scores, while another 30% are denied due to new or insufficient credit history, according to a study done by the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia.
But if one can’t get a small business loan to begin with, then how does one start building business credit, which is usually required when applying for other loans?
At Kiva US, these kinds of questions are top of mind, and we know that answering such questions involves frequent assessments of where we are as a program and where we want to go. Where are we? We’ve facilitated the crowdfunding of $60M from 372k+ lenders to 9k+ borrowers in the US in the past decade alone. We’ve reached previously financially underserved individuals and provided them with loans that have either served as a lifeline, a catalyst for business growth, or a little bit of both. Through an innovative mindset, we’ve honed in on what it means to rethink creditworthiness in this country, gaining increased clarity on how we can make our loan product even more inclusive.
Our efforts to rethink creditworthiness are reflected not only in our unique social underwriting practices and in the continuous evaluation and refinement of these, but also in the improvements that we’re making to the 0%-interest, zero-fee Kiva US loan product.
And that is why we are thrilled to officially announce the launch of business credit reporting. This has been made possible through Kiva’s recent partnership with the Credit Builders Alliance (CBA). CBA acts as the intermediary between nonprofit organizations and their exclusive credit bureau partners, including Experian Business and Dun & Bradstreet, to pull credit reports and report data to commercial bureaus.
Learn more about CBA and their Business Reporter services here.
With this new tool, we’re able to help more small business owners and entrepreneurs to not only access the first rung of the capital ladder, but to continue climbing that ladder.
Building business credit to benefit borrowers both in the short and long term
Maintaining a good business credit score can:
help a small business secure financing when they need it and with better terms (e.g., lower, more competitive interest rates and larger credit limits);
empower entrepreneurs to negotiate supply agreements;
protect personal finances and enable a clear separation of those from business finances;
facilitate quicker access to cash for growth and expansion; and
demonstrate to banks and other stakeholders that this business is financially stable.
Borrowers asked, we listened
The feasibility of implementing business credit reporting has been something that the Kiva US program has explored in the past, as it aligns so well with our mission to increase financial inclusion in this country to those who are underserved. When we heard that thousands of past and present Kiva borrowers would opt into building business credit through Kiva, were it an option, we took action. Because we know that if we want to not only scale our impact, but amplify the impact that a Kiva loan has on each individual’s life, we need to implement the invaluable feedback we receive from our borrowers themselves.
When we asked some of our current Kiva borrowers what building business credit would mean to them, their responses moved us:
“Building business credit has the possibility to open doors to other funding opportunities such as equipment financing.”
“Building my business credit would change everything, including helping secure a commercial lease for a bakery/cafe space.”
“As a struggling small farm, building business credit will help us be more appealing to lenders that could help us expand, but won't consider us as we are now.”
“We wouldn’t be where we are without Kiva, but building up our credit based on our Kiva loans would help our farm business grow to another level.”
“For me, as a small business of an immigrant woman, it is a blessing to be able to build credit for my business. With this, my production capacity will increase, and I will be able to access equipment and machinery in order to enhance my operations.”
Being able to incorporate and act on our borrowers’ feedback is inherently rewarding, and we feel confident that this new wrap-around service will continue improving the financial health of thousands of individuals across the country, having a ripple effect in their communities.
Kiva strengthens it promise to support small businesses otherwise excluded from the traditional financial system
Kiva U.S.’s commitment to increasing financial inclusion is in direct response to the financial exclusion we see in our country: 54 million American adults are financially excluded, which means they lack access to formal banking, credit cards, or home/small business loans. 26 million of these individuals are known as “credit invisible”, meaning they do not have enough credit history to produce a credit score. And small businesses, despite being the primary employers in the country, face dwindling opportunities to access capital, and oftentimes a lack of credit history means even less such opportunities.
And that leads us back to the initial question posed above: if an entrepreneur or small business owner cannot get a small business loan to begin with due to lack of credit or lack of sufficient credit, then how does he/she/they start building business credit, which is usually required when applying for other loans?
Up until this point, thousands of Kiva borrowers have used their Kiva loans to invest in assets for their business; now, they will have the opportunity to build credit, which we know to be an asset in itself. About 53% of Kiva US borrowers have no credit score or a score below 650 (which is lower than often required by other / more traditional lenders).
Kiva borrowers expected to experience not only greater financial inclusion, but also greater financial freedom
Already, 52% of Kiva US borrowers share that they are able to secure additional financing elsewhere after Kiva. Managing and repaying the Kiva loan provided them with confidence in their ability to successfully invest funds into their operations, and in turn they were able to get approved for external financing that would continue supporting the growth of their business.
At Kiva, we’re proud of that statistic, because, after all, we strive to be the first rung of the capital access ladder for individuals who are otherwise excluded from the traditional financial system. Still, we know that all of our borrowers have unique goals and needs, plans and aspirations when it comes to their business. Although we foresee that the business credit reporting opportunity will lead to an increase in the percentage of Kiva borrowers who go on to access other forms of capital elsewhere after Kiva, we know that what will be most rewarding about this will not be reflected in a mere number, but rather in the impact and ripple effect that this increased financial freedom will have on the lives of our borrowers, their families, and their communities.
