Credit Risk

Credit risk—a measure of a firm’s credit worthiness derived from the credit score of the business and its owners—is an important factor in small firms’ access to credit. High-credit-risk businesses, or those with weaker credit scores, are less likely to approved for financing and may receive less-favorable terms and interest rates when they are approved. Firms with strong credit scores, on the other hand, may be able to more easily access the financing needed to sustain their operations and grow.

Importantly, credit risk can oftentimes be correlated with other business characteristics. For instance, the Small Business Credit Survey shows that riskier firms are more often newer and smaller than those with stronger credit scores. As a result, it may be the case that businesses most in need of financing have the most difficulty accessing those funds.