SMB owner working with laptop
How can SMBs mitigate credit insecurity?
Created on Jun 27, 2024
Updated on Jun 27, 2024

According to collaborative research by PYMNTS and Sezzle, credit insecurity affects approximately 80 million US consumers, posing significant challenges for securing essential financial products like cars, houses, and education. Small and medium-sized businesses (SMBs) are not immune to these challenges, as many owners struggle with credit access and financial instability. We’ll explore how credit-insecure SMBs can better manage their cash flow and reduce reliance on high-interest loans.

Understanding Credit Insecurity

Credit insecurity is a prevalent issue, with nearly one-third (31%) of U.S. consumers affected. This group includes 24.5% who are “credit marginalized” and 6.4% who are “credit avoidant.” Credit-marginalized consumers have been rejected for credit products at least once in the past year, while credit-avoidant individuals have entirely given up on applying for credit. Millennials and Bridge Millennials are the most affected, with 46.3% and 34.7% respectively falling into the credit marginalized category. Additionally, those earning less than $50,000 annually and individuals with credit scores below 650 are more likely to face credit insecurity.

Challenges Faced by Credit-Insecure SMBs

Credit-insecure SMB owners face numerous challenges, with recent findings indicating that 6 in 10 SMBs are denied access to the business funding needed to succeed. This lack of access places these businesses at an elevated risk of closure, especially those generating less than $1 million in annual revenue. Economic disruptions exacerbate this difficulty, leading many SMBs to rely on corporate credit cards and personal credit sources to manage their operations. The reliance on personal financing underscores the urgent need for alternative credit solutions, such as those offered by FinTechs, to provide more accessible and reliable funding sources for SMBs.

Despite the availability of various financing options, many SMBs struggle to secure credit, particularly from traditional banks. The top challenges include:

1. Stringent Bank Requirements: Traditional banks often have strict lending criteria, making it difficult for SMBs to qualify for loans. This includes requirements for high credit scores, extensive financial documentation, and collateral, which many SMBs cannot meet.

2. High Costs of Borrowing: Even when SMBs do secure loans, the interest rates and fees can be prohibitively high, particularly for those perceived as high-risk borrowers. This can strain their finances and limit their ability to invest in growth opportunities.

3. Limited Credit History: Many SMBs, especially newer ones, lack an established credit history, which makes lenders hesitant to provide credit. Without a proven track record, these businesses are often deemed too risky.

4. Economic Uncertainty: During periods of economic instability, lenders become more cautious, tightening credit conditions. This makes it even more challenging for SMBs to obtain financing when they need it most.

5. Dependency on Personal Credit: Due to difficulties in accessing business credit, many SMBs rely on the personal credit of their owners. This not only limits the available credit but also increases personal financial risk for the business owners.

6. Inadequate Financial Management: Some SMBs struggle with financial management and record-keeping, making it difficult to present a strong case to lenders. Poor financial documentation can lead to loan rejections.

7. Market Sector Vulnerability: Certain sectors are more vulnerable to economic fluctuations, and businesses in these sectors may find it particularly hard to secure credit. For example, industries like hospitality and retail often face greater scrutiny from lenders.

Addressing these challenges requires a multifaceted approach, including improving financial literacy among SMB owners and developing more inclusive lending criteria. Additionally, fintech solutions can play a pivotal role in bridging the financing gap for SMBs. By leveraging innovative technologies and data analytics, fintech companies can offer more flexible, accessible, and tailored financing options that cater to the unique needs of SMBs. This includes quicker loan approval processes, lower borrowing costs, and personalized financial products, ultimately empowering SMBs to secure the funding they need to thrive and grow in a competitive market.

Flexible Financing Solutions for SMBs

Flexible financing solutions such as Pay-it-Later and accounts receivable (AR) factoring solutions offer lifelines to credit-insecure SMBs by providing flexible ways to manage cash flow without the burden of high-interest debt. Pay-it-Later solutions allow businesses to defer payments on purchases, giving them the breathing room needed to stabilize their finances and invest in growth opportunities. Meanwhile, AR factoring enables businesses to convert outstanding invoices into immediate cash, improving liquidity and ensuring a steady cash flow. By reducing immediate financial pressure, these solutions help SMBs avoid the pitfalls of predatory lending and maintain better control over their cash flow.

Factoring can be particularly beneficial for SMBs that lack tangible assets or sufficient credit scores to secure conventional loans, as well as for seasonal businesses that can lower overhead costs by outsourcing collections. This financing option is often determined by the creditworthiness of the SMB's customers rather than the SMB itself, making it suitable for businesses that work with large retailers to shorten the payment cycle. Additionally, high-growth businesses facing increasing operating costs and investment needs can benefit from factoring by shortening the cash conversion cycle.

Introducing BlueX Pay-it-Later and Get-Paid-Faster

BlueX offers innovative financing solutions designed to meet the needs of SMBs:


Pay-it-Later allows businesses to defer payments on their freight and cargo invoices for 30 to 60 days and gain the flexibility to manage cash flow more effectively. This solution is ideal for SMBs looking to stabilize their finances while growing the business.

Key Benefits:

  • Get an extra 30 to 60 days to pay invoices.
  • Access up to $1 million in funds.
  • No subscription fees or collateral required.
  • No impact on credit score.


Get-Paid-Faster is designed to improve liquidity by enabling businesses to convert outstanding invoices into immediate cash. This AR factoring solution ensures a steady cash flow, allowing SMBs to cover operating expenses and seize new business opportunities without waiting for customer payments.

Key Benefits:

  • Improve business cash flow.
  • Obtain immediate working capital.
  • No debt on the balance sheet.
  • No need to put up collateral.
  • No impact on credit score.

Both Pay-it-Later and Get-Paid-Faster are part of BlueX’s commitment to helping SMBs thrive in a competitive market by offering reliable and accessible financing options.

Case Studies and Examples

Consider the case of a small retail business struggling with cash flow due to delayed payments from customers. By leveraging Pay-it-Later solutions, the business could defer payments on inventory purchases, allowing them to keep their shelves stocked and meet customer demand without resorting to expensive short-term loans. Similarly, a service-based SMB used AR factoring to manage operating expenses during a slow season, converting their outstanding invoices into immediate cash to cover payroll and other essential costs while waiting for incoming payments.

Another example is a manufacturing SMB that combined both Pay-it-Later and AR factoring solutions to balance their cash flow, deferring payments on raw materials and converting receivables into cash to sustain operations and fuel growth. This ability to convert receivables into immediate funds alleviates cash flow problems, ensuring SMBs can fund operations, prepare for emergency expenditures, and position themselves to take advantage of emerging growth opportunities.


Credit insecurity poses significant challenges for SMBs, but solutions like Pay-it-Later and AR factoring can provide the flexibility and support needed to navigate financial instability. By adopting these innovative financing options, SMBs can manage cash flow more effectively, reduce reliance on high-interest loans, and ultimately achieve greater financial stability. If you’re an SMB owner who wants to expand your credit access, consider exploring BlueX Pay-it-Later and Get-Paid-Faster solutions to help protect your business’s cash flow.