For years now small business owners have said one of, if not, the biggest challenge they face has been obtaining sufficient credit to manage growth. No doubt that will not change in the near term. However what is changing rapidly is how finance providers determine if and how much credit they are prepared to extend to an applicant. Their decision on whether to lend or not, may be affected by the outcome of a credit file check. A negative outcome may mean that you need to undertake some form of credit file repair.
Two key factors relating to your credit file that you need to be aware of are firstly the recent changes in legislation permitting credit reporting agencies to shift from a negative reporting approach to a so called “positive reporting system” which is better described as “comprehensive approach” to credit scoring. Another significant factor is the trend to automated credit assessment whether via a direct online interface or internal process at the credit provider.
Given the above, it is now more important than ever SME’s actively manage their credit profile.
Every business’s finance requirements and situation are different so there is no definitive answer as to how to go about seeking and obtaining funding. The credit assessment process can be quite complex and will vary for each finance provider, for the purpose of this article we will try and provide a basic overview how finance providers use external credit information to asses your business.
The three main factors which can impact the outcome of a credit decision are:
1. Enquiry Pattern
2. Director Information
3. Company Registration
The enquiry pattern is a history log of when, to whom, and how much credit was requested this includes a broad range of credit providers including but not limited to:
1. General Business & trade accounts
2. Core Lending (Bank Loans overdraft)
3. Equipment Rent or Lease
4. Debtor Finance
5. Mortgage backed loans
6. Short Term (credit cards)
The type and frequency of credit enquiries can impact risk. Typically, companies that are higher risk request various types of credit from different sources more often. Business owner should be aware that each time they authorize a credit provider to obtain credit information on them or the company, be it in writing, online or verbally it may result in a an enquiry (“footprint”) being logged onto their credit history, which therefore has the potential to impact your credit file negatively. Having to initiate a credit file repair activity is something that most individuals and businesses alike have neither the time nor inclination to undertake if not absolutely necessary.
Director information is a combination of the combined consumer and commercial credit history of the directors. This may include but not limited to:
1. Employment & Address history,
2. Personnel mortgage, credit card, car loan enquiries,
3. Previous Directorships
4. Commercial Credit enquires as above including all companies associated as a director
5. Any court judgments, writs or defaults
In the case of director information the applicants details (such as age employment and address details), the type of credit being sought and the type or lack of credit sought in the past, and the number and duration of commercial addresses, can impact on the credit assessment.
Company Registration Information may include but not limited to;
1. Business premises and registered office address’s
2. Director History durations and dates
3. Shareholder information
4. PPSR registrations
5. ASIC document records
The time since a company made or changed its registration details can impact on a risk assessment. Additionally the PPSR registrations can be an indication of which credit inquires proceeded to a finance facility.
Under new comprehensive credit initiatives payment histories sourced from credit providers are now part of the credit profile to what extent payment performance is impacting on the credit assessment process is unclear however it is a development business owners should be aware of.
Typically credit providers source your company credit information from one of three credit reporting agents:
One of the largest credit reporting agencies within Australia is the Veda Group. They are notable in part because in certain instances they can offer a free credit report. In order to obtain a copy of your credit file, you will need to provide them with certain information to validate your identity and to assist with the credit file check. To learn more about this, head over to their website MyCreditFile.com.au where full details and requirements are listed.
The information in the above agent’s data base was put in by the credit providers themselves either via manual entry or automated data transfer from their systems. And as mentioned above, this should not be done without consent of the entity of individual in question.