Sep 27, 2019
When it comes to applying for small business funding, we tend to talk about the good. If you have a positive credit history, it’s generally understood that you’re more likely to get approved for a business loan—and that you’ll qualify for better rates.
But running a business isn’t all good days. We understand that for many small businesses, it’s not about how (or how many times) you get knocked down. It’s about getting back up again. Using data from over 8,500 of Lendio’s small business borrowers, we looked at common financial hurdles to see how business borrowers were coping.
When it comes to getting funding, business credit isn’t the only thing banks consider. They also look at the loan applicant’s personal credit score. If you’re feeling hot under the collar thinking, “Whew, my credit score isn’t where it should be,” worry not. We’re not here to shame you because you forgot to cancel your cell phone plan when you studied abroad in college.
Instead, we want to see how other business borrowers with fair credit (a personal credit score between 580-669) are faring. We looked at the 10 states with the lowest credit scores to analyze where they ranked in terms of average revenue and average loan sizes.
Texas’ revenue ranking matched where the state landed in terms of credit score, taking 40th place with average annual revenue of $631,535. The average loan size outperformed both of these stats. With $14,459 as the average amount awarded, Texas fell in the mid-30s, illustrating that the amount of money lent is not directly tied to credit score.
Maine’s average revenue ranking was actually lower than its credit score ranking, coming in at 45th with an average annual business revenue of $561,652. Its loan size ranking, on the other hand, put Maine towards the top of the pack. The average loan amount of $16,974 placed Maine as the state with the 15th average loan size.
Maryland had an even better ranking for average loan size, coming in 13th with an average loan amount of $17,130. This may be connected to the state’s higher average for annual revenues. Despite a low average credit score, Maryland small businesses are raking in the dough with average annual revenue of $722,091. That may be playing a factor in the state’s small business owners scoring bigger loans.
Oklahoma and Pennsylvania were just behind Texas, Maine, and Maryland with an average credit score of 655. Average loan sizes stayed on par with their credit standing. Pennsylvania came in 47th for loan size with an average loan size of $12,567. Oklahoma faired slightly better with an average loan size of $13,524, putting it at number 41.
Both states had larger than expected annual revenues. Pennsylvania’s average revenue of $633,485 put it at 29th when compared to other states. Oklahoma ranked 5th nationally with an average annual revenue topping $854,314.
How could these 2 states end up pretty much in line for credit scores despite the disparity in their annual revenue size? Pennsylvania businesses tended to be more established with an average time in business double that of funded Oklahoma businesses. That longevity may have worked to counteract the state’s lower average business revenues, putting Oklahoma and Pennsylvania on equal footing.
The next state on the list, West Virginia, dropped 3 points below the credit scores of Oklahoma and Pennsylvania. In West Virginia, ranking in the bottom 20% of states for both credit score and average annual revenue didn’t keep business owners from getting the funding they needed. The state landed in the middle, at spot 24, when it came to loan amount with an average of $15,301 awarded.
Weirdly, both “north” states share a credit score. We’d love to say there is some scientific reason for this, but we’re happy to settle for a delightful coincidence. Even with lower credit score rankings, each of the states landed in the mid-30s for average annual revenue.
Despite these similarities, North Dakota had a larger average loan size, ranking 7th nationally compared to North Carolina, which placed 43rd. This disparity might be chalked up to population differences. As a less populous state, North Dakota also has a smaller number of business owners (and business owners seeking funding). The average loan size is based on 39 funding deals in the state, compared to the 976 businesses funded in North Carolina.
Wisconsin ranked last for average credit score—and first in our hearts for cheese curds. The loan size and revenue rankings stayed steady for the state, placing 45th for the average loan amount and 50th for revenue ranking.
Derogatory credit marks sound like something your principal would threaten to put on a permanent record, and they function in kind of the same way for your credit. Derogatory credit marks are 2 things that can make borrowers hot under the collar—negative and long-lasting. Derogatory marks often indicate past failure to repay a loan. Falling behind in payments and filing for bankruptcies are 2 common causes of derogatory credit marks.
So is all lost if you have derogatory credit marks on your credit report? Not quite. Turns out that the average business owner in every single state had derogatory credit marks. The lowest average was 6 (in Arkansas, in case you were wondering). Since we’re focusing on what happens when the going gets tough for small business owners, here are the 10 states with the most derogatory credit marks on average.
Tennessee small business owners didn’t let derogatory marks get in the way of their funding. Thanks to higher revenues in the state (Tennessee ranked 32nd), the state landed in the top 20% for an average loan amount.
Despite having 28 average derogatory credit marks, small business owners in Rhode Island still managed to secure an average loan of $15,701. This may be due to the higher revenues in the state, with the average business seeing $779,238 in income annually.
Ranked at number 5, Oklahoma has one of the highest average revenues in the country. The average Oklahoma small business brings in $864,314 in revenue each year. Yet the state falls to 41 for average loan size. The smaller loan amount may be due to the lower credit scores and higher number of derogatory credit marks.
Despite coming in 7th for the highest number of derogatory marks, Colorado landed in the middle for loan size ranking. This may be due to its ranking at number 26 for average annual revenue, higher average credit scores, and a longer average time in business.
Kansas tied with Colorado and Maine for derogatory credit marks—with an average of 29 in each state. The average borrower in Kansas overcame derogatory credit marks and a low average revenue (it ranked 49) to achieve an enviable loan. Kansas had the 8th highest average loan in the country at $18,991.
Rounding out the 29 Club (Can we call it that? We’re calling it that.) was Maine. Again, Maine saw higher loan amounts compared to where it ranked for average revenue, credit scores, and derogatory marks.
Washington ranked 16th for average annual revenue, but it ranked 28th for average loan size. It’s possible that the average of 30 derogatory credit marks had an effect on the amount borrowers were able to secure, but still, $14,811 is nothing to sneeze at.
Wyoming ranked 3rd for states with the most derogatory credit marks and for average loan size with an average loan amount of $21,712. As much as we’d love to say that Wyoming has figured out the recipe for overcoming your credit history to secure financing, population size may play a role here. The small number of deals funded (59) likely plays a role in why the average loan size is so high.
West Virginia took second place with an average of 34 derogatory credit marks. Despite a low credit score and an average revenue in the bottom 20%, West Virginia landed at number 24 for average loan size. Not too shabby.
Hawaii’s average of 37 derogatory credit marks made it the state with the most derogatory credit marks on average. While businesses in Hawaii were more likely to have more negative marks, the state also boasts one of the highest average revenues in the country. Ranked 3rd for revenue, the average borrower in Hawaii earned $995,854 in revenue annually. Higher revenues and a higher credit score likely helped Hawaiian small business owners overcome derogatory credit marks to secure an average loan of $16,061, which is a ranking of 21st.
Bankruptcies—no business wants to file for one, but sometimes it can’t be avoided. Some business owners worry that having a previous bankruptcy can make them ineligible for future lending. Our data shows that isn’t always the case.
Maine ranked on our lists for states with the lowest credit, states with the most derogatory credit marks, and states with the highest percentage of bankruptcies. Of the business owners who received funding through Lendio, 8% had previously filed for bankruptcy. As we’ve previously mentioned, Maine businesses ranked 15th for average loan size—proving that they’re ready to overcome obstacles (whether that’s long winters or credit struggles).
In Georgia, 9% of funded business owners had filed for bankruptcy. Their bankruptcy percentage ranking stayed even with how Georgia compared to other states regarding average loan size (they landed at 46th) and average revenue (they ranked 40th). Even still, the average amount lent in Georgia was $12,726—enough to help a number of small business owners overcome hurdles and expand their businesses.
Kansas tied with Georgia for the percentage of bankruptcies at 9%. Kansas made it onto our list for states with the highest number of derogatory credit marks, too, which makes sense since derogatory credit marks can reflect bankruptcies. Like Dorothy trying to leave Oz, borrowers in Kansas persevered, landing the 8th highest average loan amount nationally.
In Vermont, 10% of business owners had previously filed for bankruptcy before securing funding through Lendio. Thanks in part to their average annual revenue of $603,624 and longer time in business—15 years!—Vermont business owners were able to secure an average loan of $13,979.
Pennsylvania was in the bottom 10 states for average credit score rankings, which may have been in part due to the 10% of business owners who had filed for bankruptcies. This number might have affected the average amount they were able to borrow, despite having an average of over 12 years in business and ranking 30th for revenue.
Washington showed up on the list for states with the most derogatory marks and the highest percentage of bankruptcies, which again makes sense because of how derogatory marks can reflect bankruptcies. This seems to have affected the average loan size, which was lower than we would have expected for the state with the 16th highest average revenue in the country.
Ohio didn’t let a history of bankruptcy get its small business owners down. Even though 11% of borrowers had previously filed for bankruptcy, business owners in Ohio were still able to secure an average loan of $17,881, the 10th highest of any state.
Wyoming is another state where derogatory credit marks and bankruptcy history seem to be connected. The state has a higher-than-expected average loan size, though that may be due to the low number of deals funded in the state, which in turn is a reflection of population density.
In Arizona, 22% of business owners had filed for bankruptcy prior to securing a loan through Lendio’s online platform. Their higher revenues and average of 8 years in business helped business owners rebound for a higher than expected average loan of $14,794, putting it at 29th for average loan size.
Almost a third of Idaho business owners had filed for bankruptcies. They had a lower average revenue than other states, landing at 47th, with annual earnings of $512,988. Their average loan size was in the bottom 20%, but that still averaged to $13,230 per loan.
Mary Kate Miller is a writer based in Chicago, IL. She specializes in covering finance (personal and business), investing, and real estate. Her mission in life is to give readers the confidence and the knowledge needed to grow their wealth by making financial topics more accessible. When she's not writing about topics like business loans, you can find her playing armchair financial advisor to the Real Housewives.
Nov 2, 2019