More than one in two (53 per cent) Australian business owners don’t realise that their business even has a credit score, down from 93 per cent in 2018. And, among the 47 per cent of business owners that are aware their business has a credit score, one-third (31 per cent) did not know their own business’s actual credit score.
Knowing your business credit score is important, however, as it is one factor lenders look at when determining whether an SME is eligible for finance – and the interest rate it will be asked to pay.
The independent research, conducted by Honeycomb Strategy on behalf of SME lender OnDeck, also found that over three in four (76 per cent) SME owners who are unaware of business credit scores say it would be useful to know their business credit score.
Cameron Poolman, CEO of OnDeck Australia, said, “OnDeck research shows that one in four SMEs plan to seek additional business finance in the future, with significantly higher intention amongst larger SMEs. So it’s a concern that there is such a low level of awareness about business credit scores, which can go a long way to shaping the availability and cost of credit for Australian SMEs.”
One in ten SMEs achieve top credit score
SME credit scores range from 1 to 1000, with a higher score indicating a lower risk to lenders.
Among those SMEs that know their business has a credit score:
- 8 per cent had a score of less than 500
- 23 per cent had a score of between 500 and 750
- 27 per cent had a score of between 750 and 1000
- 11 per cent had a score of more than 1000
- Nearly one-third (31 per cent) did not know their actual business credit score.
Poolman identified five simple steps SME s can take to boost their credit score, explaining that the reward can be improved availability of trade credit, greater access to working capital needs, and lower lending rates.
- Pay bills on time – late payments and defaults can be recorded on an SME’s credit history leading to a lower credit score.
- Carefully manage applications for new credit – an SME’s credit history will display applications for new credit including those that are not successful, and multiple applications can leave lenders asking questions about why an SME may have been rejected for finance by other lenders.
- Maintain a manageable level of debt – borrowed funds can help an SME seize business opportunities as they arise but the key is to maintain a level of debt that is manageable within an SME’s current and forecast cashflow.
- Recognise the merits of different types of credit – Using long term debt to meet short term business needs can lead to cashflow problems and unnecessary interest charges, so, review the balance sheet, look at how different credit options are being used, and aim to match cashflow needs with appropriate finance strategies.
- Monitor your credit score – real-time monitoring of any changes in the business’s credit score allows the business owner to keep tabs on the venture’s credit worthiness.
