Square Capital Small Business Creditworthiness Report

Square Capital Report Shows Small Business Creditworthiness Confidence Holds Steady Heading Into 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 businesses.

Square Capital revealed 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.

Creditworthiness Depends on Industry

Businesses that are most creditworthy are those in the health & beauty industry (89) and other sectors less prone to economic cycles, 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.

Square Capital Small Business Confidence Index

Using survey data from over 1,000 small businesses across the U.S., 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.

Small Businesses Still Struggle to Access Financing

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:

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-Owned Businesses Often Fail to Receive Proper Financing

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 view the complete findings and learn more about the state of small business, please read The Capital Report here.

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