Small businesses play a critical role in the US economy. Yet many small business owners struggle to access the capital they need to sustain and grow their businesses. To explore how to bridge this credit gap for small business owners, we review the Get Ready loan, a credit-building product and financial coaching program for small business owners offered by Ascendus, a community development financial institution (CDFI). The program provides borrowers a $500 line of credit, with the ability to graduate to a $5,000 line of credit after three months of on-time repayment.

Why This Matters

The model and approach contained within the Get Ready Program offer important lessons for the broader CDFI field and its funders. The approach differs from other credit-building initiatives by (1) focusing on small business owners, rather than consumers; (2) targeting borrowers with credit scores below the typical threshold accepted for traditional loans; and (3) offering a revolving line of credit, which provides greater opportunity to build credit history even at a low dollar amount. Ascendus has demonstrated that this model can help some credit-challenged borrowers manage a line of credit and prepare for larger loans while limiting risk to the lender.

What We Found

The Get Ready Program has provided important access to capital for small business owners who might otherwise struggle to access traditional loans. After two years, the program has shown promise toward improving access to capital and financial health, developing new borrowers, and providing a replicable model. Findings include the following: 

• Several borrowers noted that the program took a chance on them when no other lender would. Incoming borrowers had an average credit score of 571, lower than the typical threshold traditional lenders use. The program reaches borrowers largely unable to access capital via other lenders.
• Despite coming into the program with credit challenges, 41 percent of participants graduated from the $500 line of credit to the $5,000 line of credit. Several participants were also able to access additional loans outside the program.
• Borrower impressions of the program were largely positive, particularly regarding financial coaching. Many noted increased financial literacy and felt the program gave them tools to help them manage their credit.
• There is demand for the program. Ascendus has a pipeline of 150 potential borrowers in the application process. Yet the program requires grant support to expand its reach and impact into new markets.
• Additional research is needed to understand the program’s full impact. In particular, more analysis is needed to understand the program’s long-term outcomes on borrowers, including improvements to their finances and credit standing.
• Some borrowers had suggestions for improvements. Some suggested the addition of a user-friendly mobile app to manage accounts. Others noted challenges with the line of credit’s low dollar amount.

How We Did It

We conducted interviews and analyzed program and credit report data. 

• We interviewed three program leaders and nine borrowers, including three borrowers at the initial loan level ($500), five at the first graduated level ($5,000), and one who further graduated to an Ascendus loan above $5,000. We asked questions to help us understand program goals, design, usage, and perceived effects.
• Program and credit report data analysis. We analyzed deidentified program data and pre-loan credit report data, provided by Ascendus. Program data included information about 174 borrowers, their businesses, and their line of credit and repayment performance, and pre-loan credit data included credit attributes for 161 borrowers.