While awareness of personal credit scores has been rising in Australia, business credit scores – yes, there are credit scores for business – are still woefully ignored by Australian small businesses. According to research from MYOB and small business lender OnDeck, 93% of businesses have never accessed their score.
Cameron Poolman, CEO of OnDeck, says the issue is awareness.
"I noticed that when the consumer credit scores became available. At that point, I thought small businesses really didn't know it either and it's just something where there just hasn't been the level of awareness in Australia that there has been, for instance, in the US, where FICO is a well-known score that people know."
Cameron Poolman
CEO - OnDeck
At OnDeck, we're trying to build people's awareness.
But what is a business credit score? What do you do if your score is low? And importantly, how do you find out your score?
What is a business credit score?
It is a number between 0 and 1,200 that is calculated using the information on your business credit file.
Source: Equifax
How is it different from a personal credit score?
According to Poolman, a business credit score doesn't include the personal information that is used to calculate individual credit scores.
Your company's file will contain:
Company details. Information on structure and current shareholders.
Public record information. This will include any legal matters or action taken against your firm by the Australian Securities and Investments Commission (ASIC).
Personal Property Securities Register (PPSR). Any information the PPSR have concerning your company's possessions will be on your credit file.
"A business credit score has got more of the commercial information, such as registered defaults, potential loan inquiries or any external administration that may be registered against the business, so it's very much the commercial and business attributes of the business," he said.
However, there are some similarities.
"In the same as in the personal space, without any positive credit reporting, it almost accentuates the negative. And so, it is quite difficult to get to build your credit score up again once you've got a negative listing or your score has dropped because you're not getting that positive reporting coming through to increase it," he said.
Finder survey: Do Australians from different states know their business credit score?
Response
WA
VIC
SA
QLD
NSW
I don't have a business
52.14%
37.89%
55.7%
43.5%
42.67%
No
37.61%
51.58%
36.71%
46.64%
46.53%
Yes
10.26%
10.53%
7.59%
9.87%
10.8%
Source: Finder survey by Pure Profile of 1145 Australians, December 2023 Data for ACT, NT, TAS not shown due to insufficient sample size. Some other states may also be excluded for this reason.
What impacts a business credit score?
Your business credit score is calculated using the information listed on your company credit file. This information includes:
Credit enquiries. Your business credit shopping patterns and the type of credit you've applied for can increase your credit score.
Time in operation. A newer business may be deemed riskier than a business that has been incorporated a longer time.
Director information. Court judgements, bankruptcies, defaults, external administration segments that are listed on a director's file.
Personal Property Securities Register (PPSR). Details of any PPSR registrations held on a business are listed in your file.
Company details. This includes the company structure, legal entity name, business address, directors, shareholders and more.
Information on the public record. This can include recorded liens, lawsuits, judgements or delinquent taxes.
Source: Equifax
What can damage your score?
Business defaults and late or missed payments are some of the main contributing factors to a low score.
"Another way the score could be impacted is just by the quantum of applications for credit that you've made," said Poolman. "So if you are asking for credit from a large quantum of different institutions, that will have a negative impact on your score."
What else do lenders look at when considering you for a loan?
The criteria for business loans, and what information will be considered, varies greatly from lender to lender.
"If it's a secured loan, they're looking at the securities that the person has provided, and that might be over particular assets, it could be the business, or it could be the person's home that they're lending against. What's also important is the cash flow."
"We will look through, in detail, a company's cash flow and determine its ability to service the loan that they're looking to get. Other funders will look at profit and loss statements, balance sheets, tax returns. It's different for different funders."
What should you do if your credit score is low?
Poolman's advice to any business that has a low credit score is to order a copy of their business credit report, which they can get for free directly from a credit bureau.
"Once you get that report, you know if it's a default issue. So if I a supplier has defaulted you, you know who it is, and then you could determine whether you're able to settle that issue and then remove that from your file, which will generally increase your score."
If you've found out your business has been flagged as a credit risk, there are a few things you can do to appear as less of a risk to lenders and improve your business's credit score:
Make payments on time. This is the easiest and most effective way to quickly increase your credit rating.
Stay away from legal problems. Any involvements with the courts will be highlighted on your credit file and will tarnish the image of your company.
Keep in touch with your creditors. If repayments are getting out of hand or you are evaluating your financial situation, keeping your creditors or business loans manager in the loop may help your situation down the track.
Where can you get your credit score?
You need to pay to receive your business credit score directly from a credit reporting bureau, such as Equifax, but OnDeck allows small businesses to receive their credit score for free.
Poolman believes that more and more small businesses will be looking to access their credit score because of its importance when applying for loans.
"I think in time, consumers, as well as small businesses, will become more aware of their credit score because it impacts their ability to access credit."
"We want to be at the forefront of different opportunities to help small businesses. We'd say this is one way of doing it."
The difference between hard and soft pull credit checks
Not all credit checks negatively affect your credit score. Lenders do two kinds of checks before approving or denying a business loan application.
Soft pull inquiries
Individual and business profiles are subjected to soft pull inquiries everyday without being aware of it. Lenders can do a soft pull check for an overall idea of your financial status before pre-approving your application, or credit bureaus can soft pull your file if you request your credit score.
Soft pull inquiries have no impact on your credit score, but may be noted as a file access.
Hard pull inquiries
Hard pull credit inquiries involve an official check of your credit report. When you apply for a car loan, personal loan or home loan and allow a lender to check your credit file, the lender will conduct a hard pull. While soft pull inquiries have zero effect, hard pull checks are listed on your credit file and therefore can affect your credit score.
Every hard pull credit check is listed on your credit report, including which lenders have denied previous applications and how many times you've applied for loans in the past. Too many hard pull inquiries in a short space of time can negatively impact your credit score.
You have to give the lender permission to conduct a hard pull inquiry. Before submitting a loan application, make sure that your business meets all the criteria and has a good chance of being approved. While a hard pull will reflect on your credit report either way, carefully considering your loan options can help avoid adding rejected applications to the list.
Improve cash flow
If your business has a few outstanding invoices, invoice financing can help improve your cash flow and get access to funds you need. It's a type of business loan that is secured by the unpaid invoices and comes with reduced risk, no asset requirements or interest payments.
Our business loan engine is completely free to use. There are no costs at all for you to use our database to find a better deal. Better still, we regularly run exclusive deals that you won't find on any other site.
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Elizabeth Barry is the lead editor for Finder. She has over 10 years' experience writing about a range of topics with a focus on personal finance. You’ll find her writing and commentary in a range of publications and media including Seven News, the ABC, MSN, the Irish Times and Singapore Business Review.
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