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Square Capital Report Shows Small Business Creditworthiness, Confidence Remain Strong

Jan 15, 2020

In partnership with the Wharton School’s Stevens Center for Innovation in Finance, Square Capital shares new data – including its own credit insights – revealing the financial health of U.S. small business

Square Capital revealed today that despite economic uncertainty, U.S. small business owners remain confident heading into 2020 as creditworthiness holds steady entering the new year. By indexing its own proprietary credit data for the first time, Square Capital showed that small business creditworthiness just slightly improved to 79 in 2019 from 78 in 2018, on a scale of 0-100.

Businesses that are most creditworthy are those in the health & beauty industry (89) and other sectors less prone to economic cycles(1), such as health services (82) and food and beverage (80). This index is formed from the same data used to extend loan offers to hundreds of thousands of Square sellers each month.

Square Capital also partnered with the Stevens Center for Innovation in Finance at the Wharton School of the University of Pennsylvania to determine whether sentiment around credit and business strength tracks against its internal data. Using survey data from over 1,000 small businesses across the US, Square Capital and Wharton created a Small Business Confidence Index to measure businesses’ outlook on their sales and access to credit over the next 12 months. The Confidence Index is a score between 100 (completely confident) to -100 (not confident at all). For 2019, the Small Business Confidence Index was 56, demonstrating relatively high confidence and an optimistic outlook around growth and access to funding.

Confidence is highest for business owners ages 18-34 (indexing at 69), as well as those located in urban areas (61). Conversely, business owners ages 55+ (42) and rural businesses (49) have some of the lowest Confidence Index positions.

Survey results also found that access to credit remains challenging. 47% of small businesses say they find obtaining financing to be a difficult or frustrating process, and 37% believe that obtaining financing does not feel accessible. Perhaps for this reason, over half of small businesses report using a personal credit card to finance their business (52%). Other key findings on credit access include:

*While access to credit remains challenging, it’s easier to access financing in rural and suburban businesses.

Urban small businesses reported the most difficulty accessing the funding they needed. Over half of urban businesses (54%) did not receive any or all of the funding they needed, as opposed to 44% in rural and 47% in suburban areas. However, businesses within urban environments are more bullish on their sales in the next 12 months, with 74% of them expecting their sales to grow, versus 66% of businesses in rural and 62% of businesses in suburban areas saying the same.

*Minority business owners are more likely to apply for financing – but less likely to receive it.

Minority-owned small businesses were significantly more likely than White/Caucasian small business owners to apply for financing in the last 12 months, suggesting financing is especially crucial for minority-owned businesses. However, White/Caucasian and Asian business owners are the only segment for which a majority of respondents state they received all the funding they need (55% and 53%, respectively). The following percentages show the discrepancies in funding:

Percent who applied for financing:

  • Black/African-American: 94%
  • Asian: 90%
  • Hispanic/Latinx: 85%
  • White/Caucasian: 70%

Percent who were underfunded:

  • Black/African-American: 58%
  • Hispanic/Latino: 67%
  • Asian: 47%
  • White/Caucasian: 45%

To review the findings for yourself and learn more about the state of small business, please read The Capital Report here.

1) https://www.entrepreneur.com/article/233491

About Square

Square, Inc. (NYSE: SQ) revolutionized payments in 2009 with Square Reader, making it possible for anyone to accept card payments using a smartphone or tablet. Today, we build tools to empower businesses and individuals to participate in the economy. Sellers use Square to reach buyers online and in-person, manage their business, and access financing. And individuals use Cash App to spend, send, store, and invest money. Square has offices in the United States, Canada, Japan, Australia, Ireland, and the UK.

__About the Wharton School and the Stevens Center __

Founded in 1881 as the world’s first collegiate business school, the Wharton School of the University of Pennsylvania is shaping the future of business by incubating ideas, driving insights, and creating leaders who change the world. With a faculty of more than 235 renowned professors, Wharton has 5,000 undergraduate, MBA, executive MBA, and doctoral students. Each year 13,000 professionals from around the world advance their careers through Wharton Executive Education’s individual, company-customized, and online programs. More than 99,000 Wharton alumni form a powerful global network of leaders who transform business every day. For more information, visit www.wharton.upenn.edu.

The Stevens Center for Innovation in Finance is the premier research, education, and thought leadership institution in the world for financial technology. By engaging students, faculty, and industry, the Stevens Center is uniquely positioned to prepare world leaders for the future of finance. At the Stevens Center, students bolster classroom learning with guidance from Wharton faculty and real-world insights from financial institution leaders. Faculty engage in seminal research and projects leveraging cutting-edge datasets to explore critical questions in finance.