Non-bank SME lender Banjo Loans is urging Australia’s small- and medium-business owners to improve their financial literacy by getting a better understanding of their credit files.
Chief Risk Officer at Banjo Andrew Ward explained that, while lenders are primarily looking at a company’s ability to repay loans on time, they are also assessing their intention to repay credit based on past performance.
“We use business credit files as a reputational piece,” Ward said. “A healthy credit report gives you more opportunity to get cheaper credit, be offered more flexible terms of repayment, or to extend existing facilities when opportunities come up and you need to go into debt to make the most of them.”
Banjo shared that it approves around 55 to 60 per cent of all loan applications it receives and that when an application is declined it is often because applicants have failed to demonstrate their ability to service the loan. Because of this, the lender stressed that SMEs must ensure the information in their files is correct.
“Unfortunately, having incorrect information in credit files is one of the most common mistakes individuals or organisations make,” Ward said. “You want to ensure that your personal repayment history or any sort of information that is on the public record is accurate.”
It is also noted that Australian credit reporting agencies aggregate the information that goes into a credit file and create a credit score and, since they do not necessarily have the same information, each agency may each have a different score.
“Telecommunication companies might, for example, send default information to one credit bureau and not to others,” Ward explained. “You can’t just look at one and necessarily think it’s the same information on the other reports,” adding that the number of credit inquiries made under a company’s name may affect its overall credit score, meaning they must check their credit files about those inquiries.
“In some cases, the more inquiries you make, the more ‘credit hungry’ you may be in the eyes of lenders,” Ward pointed out. “This may have the potential to push your overall credit score downwards because it may look like your business is in financial distress.”
Ward reminded businesses to pay their bills, credit facility or loan prepayments on time and manage their credit limits wisely to ensure they have a healthy credit file. He also recommended that businesses regularly check the information on their business credit file to ensure accuracy as a means to maintain a good score.
