Industry Expert Speaks to Expanding Access to Credit for Small Businesses

May 03, 2023

NINETY-NINE PERCENT OF BUSINESSES ACROSS THE U.S. ARE SMALL BUSINESSES making it critical for small businesses to reliably access credit in order to help fuel continued growth, especially as financial stress and uncertainty remains a concern in today’s market. The recently-launched Equifax OneScore for Commercial aims to do just that by bundling differentiated data assets to help lenders more confidently make decisions when assessing credit opportunities for small businesses and start-ups.  

Bill Phelan, General Manager for Commercial Business at Equifax, discusses the importance of small businesses, what they are going through in the current economy, and how they can better access significant credit opportunities through the OneScore for Commercial product. 

How are the finances of small businesses affecting the economy today?

Bill Phelan: By itself, the small business economy would be a standalone economy and bigger than most economies around the world. Small businesses employ 62 million Americans. Thirty-eight million small and private companies in the United States represent 11 trillion dollars of gross domestic product, which is quite a meaningful portion of our economic activity in the U.S. These businesses include people who work as dry cleaners, car washes, plumbers, carpenters, and farmers, for example.

However, small businesses can be more susceptible to economic headwinds affecting the macro market environment. That’s what we are seeing today - the combination of high inflation, rising interest rates, and market tightening is reflected in the finances of small businesses. Small and medium sized business delinquencies are ticking upwards and are at their highest point in two years (Equifax Small Business Indices). 

What’s going on in the economy? 

Bill Phelan: Small business loans are estimated to be $8.5 trillion, which is a key source of growth capital for SMB’s. A small portion, only 1.5%, of these loans outstanding are past due. And so, the financial health of these small businesses remains strong despite holding back investments due to uncertainties in the economy. We do see some spottiness depending on what industries and geographic region these businesses operate.

For example, down on the farm is strong right now. The agricultural sector is doing really well and we don't see rising financial stress in that segment. Also, we don't see it in construction, retail or general “Main Street American” businesses, such as dry cleaners and car washes. However, the transportation segment is seeing some pullback, and that's to be expected because there's less gross domestic product, so shipping of goods would also decrease. That being said, the overall financial health remains strong even with some pullback by these small businesses. 

What is OneScore for Commercial?

Bill Phelan: OneScore for Commercial is our new credit scoring model. This technology uses our patented neurodecision technology combined with explainable AI. The performance lift from this is quite remarkable. What we've done with the OneScore for Commercial is we have broken it out by the 12 major industry categories in the United States private small business economy. These are retail, manufacturing, real estate, agriculture, and healthcare, among others. The validations show strong results for our clients – that the validations improve the predictive lift, which is really exceptional. What this means for our clients is the opportunity to approve up to 15% or 20% more loans and applications to small and medium-sized businesses versus what they would have done without OneScore for Commercial.

How is Equifax improving financial inclusion for small and medium-sized businesses?

Bill Phelan: Equifax is investing during these uncertain economic times to raise financial inclusion for small and medium-sized businesses. We're making it easier to access the data through our database waterfall capability. This technology allows us to deliver the highest hit rates for our customers by leveraging different databases that are specific to the commercial world. In one case, for a major bank in the Midwest, we were able to deliver a 98% hit rate on the commercial businesses. The OneScore for Commercial combined with the database waterfall delivers 50% more scorable results to our clients. This database waterfall also includes the business owner, which is important when granting credit to small and medium-sized businesses. 

For more on OneScore for Commercial click here

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