Is it safe for your business to add new customers and extend business credit? Recent data shows that with good business credit information, now is the time to grow your sales.
Many businesses’ earnings are on the uptick, thanks to stimulus and vaccine rollouts.
Positive Highlights include:
- A 6.3% decline in bankruptcies in Q1 of 2021, according to the Administrative Office of the U.S. Courts
- Commercial credit card delinquencies are slowing and somewhat stable due to stimulus payments
- Forbearance, deferrals, and modification activity are also on the decline
Overall, there has been credit available for consumers who need it. Some lenders have even expanded into riskier tiers as they modify strategies to differentiate risk.
That said, the current situation is far from perfect.
Potential Pitfalls to be Aware of
In areas where local shelter guidelines are still active, commercial delinquencies persist.
As foot traffic inches toward normalcy, small businesses have utilized stimulus and available credit to supplement their cash flow.
Surprisingly, there has been a trend in new business starts in 2021. However, as new businesses, they lack the credit history to qualify for traditional loan products.
And with stimulus keeping delinquency trends stable for now, fintech’s will struggle to gauge consumer risk levels.
How can you, as a Commercial Lender or Business, safely take advantage of current opportunities?
Above all, it’s essential to look at the big picture–the whole picture–when it comes to lending decisions.
Let’s look at two cases:
Evaluating a new or unknown business:
As we discussed above, there has been an increase in new business formation. Some of these businesses will grow, and you have the potential to add and support a new customer. However, by definition, a new company will not have a meaningful credit history to use when your credit manager or loan officer makes a credit decision.
This is where our blended business credit reports serve to create more intelligent, more consistent lending decisions. By looking at both the business and owners’ creditworthiness, you can make smart credit decisions.
This is important because there is a strong correlation between how a business owner handles their personal credit and their business credit.
To put that in perspective:
For better or worse, Experian found that 84% of the time both personal and business credit experienced the same end-result.
The blended scores help to bolster new business credit profiles. As a result, there is a more precise level of risk assessment.
Evaluating an existing business customer:
In the second case, let’s look at why a blended business credit report helps you evaluate changes in the health of an existing small business customer. During the pandemic, they may have taken advantage of government COVID business support programs. This may have increased their debt. Also, they may have used personal funds or assets to support their business.
You can see how blended business credit reports help you evaluate the current condition of existing customers with business credit needs. They allow reduced credit risk by understanding a business’ participation and repayment behavior. For more information on accessing blended business credit data, contact your Credit Plus Account Executive today.