Advice for Minority-Owned Small Businesses: Stay Away From Personal Credit Cards

Small Business Credit vladi_mir/Adobe Stock

A new study shows minority-owned small businesses tend to have a slightly lower business credit score than the overall small business population and tend to be late on paying down credit card balances, according to a new report from Experian. One reason for this: some small, minority owned businesses are using personal credit cards for business purposes.

This can be a problem, for example, if a business has a slow month in terms of revenue and is unable to pay the full credit card balance or make a payment at all. One or more missed payments can easily drag down a credit score. Pete Bolin, director of consulting and analytics for Experian, said he would recommend that small business owners be very careful using personal credit cards for business. Small, minority-owned companies should establish a commercial credit card account and look to trade credit opportunities, he said.

Bolin used the example of a construction company working with its lumber supplier on payment terms. The construction company in this instance knows when it will be paid for its work and when it will have cash to pay its lumber supplier. Working with the supplier to establish trade credit terms will ensure the construction company is never delinquent on a supplier payment, Bolin said. This is a smarter option than paying suppliers with personal credit, which could end in late payments and a ding to one’s credit score.

Additional Credit Data

Bolin said the goal of the Experian study was to provide transparency around credit management and access to credit. It looked at its own consumer and business credit database from December 2015 to see if small, minority-owned businesses have equal access to credit. It’s information business owners as well as lenders and credit managers can use, he said.

The report showed that while small, minority-owned businesses do have access to credit, they tend to have slightly lower business and personal credit scores. According to Experian, the average business credit score for a minority-owned small business is 49.7 (based on a scale of 1 to 100, with 100 being the least risky), five points lower than the general small business population.

Additionally, Experian reported 8.3% of small, minority-owned businesses have at least one personal credit card account that is severely delinquent, meaning they are more than 90 days late on paying. Also, 1.2% of these business owners have at least one business credit card account that is severely delinquent. In comparison, about 6.8% of the general small business owner population have at least one delinquent personal credit card account and 1.1% have a delinquent business account.

Another finding was that while minority-owned small businesses may be more delinquent on payments, their balances are slightly lower. The average outstanding business balance among small, minority-owned businesses ia $8,759. For the general small business population, that average balance is $9,066.

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