Using Business Credit Scores to Graduate Borrowers
Last week, Kiva “Zip” graduated out of Beta, and officially became Kiva U.S. on the main Kiva.org website. We’re excited about this for a whole host of reasons, but above all, we’re excited for the new opportunities this presents to our borrowers, who will now be in front of an audience of over a million lenders across the globe.
On the Kiva U.S. team, we talk about graduations a lot. When a loan is highly risky to us, rather than rejecting it, we might start the borrower out with a small loan, and then graduate them to larger Kiva loans as they repay their first one. When a borrower begins fundraising their loan, they don’t immediately start on the public Kiva website; instead, we ask them to secure a small number of their initial lenders to demonstrate their creditworthiness before graduating to the main website. And when a borrower fully repays their Kiva loan, we hope that they can graduate on to larger forms of capital from other lenders - like banks and Community Development Financial Institutions (CDFIs). Now we’re making moves to make that process easier for our borrowers - by beginning to report on their business credit score.
Since January of 2016, we’ve been reporting our borrowers’ loan payments to Equifax - one of the big 3 credit reporting agencies in the U.S. - who in turn is using that information to build out business credit profiles and business credit scores of each borrower. When a borrower submits their monthly payment on time, they begin to build a business credit score that might encourage other lenders to make loans to them in the future, and at a lower cost to the borrower.
Established lenders like banks and microfinance institutions can look at business credit scores, and a borrower’s history of on-time payments with Kiva, to determine their creditworthiness and interest rate. This will allow more of our borrowers to climb the credit ladder, accessing larger and larger forms of capital to grow their business.
If borrowers do not pay back their Kiva loan on time, however, it will damage their business credit score. That may impact their ability to get larger forms of capital for their business in the future.
Business credit reports and scores are not related or linked to personal credit scores and reports, and institutional lenders can look at both when making credit decisions. In other words, a borrower’s personal credit score will not be affected by their business credit report, but personal lenders may still look at their business credit report before deciding whether to give them a personal loan. More information on how business credit reporting works can be found here.
As we collected our diploma and joined the main Kiva.org website last week, our Kiva U.S. team had a lot to reflect on. Over the last four and a half years, we’ve distributed $11.5 million of capital to over 2,000 small business owners in 47 states, and we’ve charged $0 of interest along the way. We believe that by helping our borrowers to build their business credit, we can expand access to capital for even more entrepreneurs.
Have questions about this? Let us know at firstname.lastname@example.org.