Small business owners look to credit cards as an engine for growth and protection against unexpected costs, according to new data from Hello Alice.
Hello Alice conducted a survey of more than 5,000 small business owners to better understand their credit needs and experiences. The results show that owners with personal and business credit cards heavily rely on them to operate and grow their businesses. Conversely, owners without access to credit believe a business credit card would help them operate, stabilize, and grow their firms.
Here are some key insights about small business credit usage in 2022:
1) Small Business Owners Rely on Personal Credit for Funding
Currently, 73% of small business owners surveyed have a personal credit card. The majority (61%) of these owners use this personal credit card to fund their business — not simply for emergencies. In fact, nearly three-quarters of those who use their personal credit card to fund their business are using it at least monthly.
Among those surveyed, the most common uses for personal credit cards include:
- to meet day-to-day operating expenses (63%)
- to expand the business and pursue new opportunities (50%)
- to replace and/or repair large, long-lasting business assets (38%).
Even so, accessing this credit has not come easy to all small business owners. Nearly 45% of those surveyed have claimed they have had a personal credit card application denied within the last five years. Of those who have a personal card, 41% have a total credit limit of under $3,000. These relatively low credit limits lessen the card’s utility for owners looking to cover large expenses or pursue areas of expansion.
2) Few Owners Make Use of Business Credit
Surprisingly, 80% of owners claimed they either do not have a business credit score or they do not know their business credit score. Only 20% of owners currently have a business credit card, and nearly half (42%) of those business card holders have had it for less than a year.
As with personal credit cards, respondents told us they use business credit cards to operate, grow, and replace/repair capital assets. The difference emerges in how often owners use business credit: Nearly 50% of owners are using their business credit cards once a week or more to fund their business. Business credit cards also carry higher spending power, with only 30% of respondents reporting business credit limits of less than $5,000, compared to 52% of those with a personal card.
3) Despite Barriers, Demand for Business Credit is High
In total, 90% of small business owners without business credit believe a business credit card would impact their business in a positive way.
Asked how a business credit card would specifically impact their business:
- 59% believe it would help cover unexpected expenses
- 59% believe it would allow them to pursue new opportunities
- 52% believe it would accelerate growth
- 47% believe they would be more optimistic about the future of the business.
Currently, only 25% of respondents have ever applied for a business credit card, and 85% of those applications were denied.
This modest application rate and high denial for business credit correlate with obstacles to obtaining personal credit. For example, 42% of owners reported a personal credit score less than 620, and 45% have had at least one personal credit card application denied in the last five years.
4) Owners Want Resources to Improve Their Credit
According to our survey, 88% of small business owners want to improve either their personal or business credit or both, and 70% are interested in educational content on this topic.
Additionally, owners are already pursuing many strategies to improve their credit, including:
- paying bills on time (76%)
- disputing credit report errors (38%)
- using a secure credit card in hopes of improving credit (25%)
- requesting higher credit limits (22%)
5) Access to Personal and Business Credit is Not Equitable
Crucially, access to credit varies widely across demographics.
For example, Black small business owners are much more likely to lack both a personal and business credit card (31%) compared to their white counterparts (12%). Less than half the portion of Black owners has a business credit card than the portion of white owners. Black owners also have a much higher rate of denial for both types of cards.
Education and technical assistance will be key to reversing this trend, and a resounding 93% of Black small business owners surveyed want to improve their credit.
More Resources
Interested in learning more about small business credit access? Download the full report here.
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