Around six per cent of Australia’s small businesses have a credit score below 670. While this is classed as a ‘good’ rating, is it good enough when it comes to applying for business finance? Your credit score is a crucial piece of your business finance puzzle, but not the sole determinant of loan approval.
Factors like business viability, financial health, and loan specifics significantly influence the decision-making process. By managing your credit score effectively, you can unlock a world of opportunities for your business, paving the way for smoother, more sustainable operations and increased success.
Where does your business sit on the scale?
A credit score of 650 can increase the likelihood of a loan approval. Ideally, customers should be in business for a minimum of two years. A credit score of over 650, alongside detailed finance history can improve your chances of an approval with a lender who offers decent rate and terms, and potentially speed up the process.
Have you got what it takes?
Your credit score acts as a benchmark for lenders; however other factors are taken into consideration to determine if, and how much a business can borrow.
The main factors taken into consideration are working capital; can they pay their bills and expenses, and how much is left over; The length of the business, and are they registered for GST – indicating they’re earning over $75,000. It’s beneficial to keep a savings buffer in your account – regardless of how much the business earns.
Build a strong business credit history: responsible borrowing and repayment.
Small fast cash loans that offer quick finance for small amounts of money $100-$2000 predominantly, might seem like an easy and miniscule top-up to pay the bills, but lenders don’t see this as a feather in a positive good payment history cap.
Think credible, substantial loans like a mortgage, personal or car loan with a reputable lender, or a credit card that’s within your spending limits – and that you’re paying on time. The life of the loan, including late or missed payments, are recorded on your credit file for two years. Having a payday loan on your credit file is almost just as bad as having a default.
There’s a fine balance between having an open account and building your credit history versus having access to more than you need.
Borrow within your means. If a credit card provider offers you $10,000 but you applied for $5000, don’t get excited; keep the amount modest. It is really easy to overspend once you have an open ended facility, but it can often be really tricky to pay back.You have a borrowing capacity based on personal circumstances, if you need further funding, you might not have the affordability to borrow it.
Know your score and shop around with professional advice
When applying for finance, banks look at your score first. But without delving deeper, it’s difficult to determine whether your credit score and report are affecting your business finances. Checking your credit score and obtaining your file online is simple.
Be wary of using third-party sites; they might not be accurate. We’ve seen an increase in comparison websites revealing credit scores. While they look credible, the only way to get a true representation of your credit score and file is to go straight to the source. You can obtain a free personal copy of your credit file from Equifax, or your business file from Dun & Bradstreet.
Your personal and business credit scores can both be factored in by lenders when you go seeking funding. Maintaining good standing in both areas is crucial. A good financial advisor or broker will work with you to look at loan options from different lenders that best fit your needs.
