18th June, 2018
There’s one number which can determine the success of your business securing funding. Want to know what it is?
Not often discussed in business is the need to maintain a good credit rating.
This is the rating which can impact your ability to secure a business loan.
If your score is low, then some lenders simply won’t lend to you. Some lenders may lend to you, but at higher rates.
Conversely, having a good credit rating opens a raft of funding options to your business.
A recent MYOB Business Monitor survey found that 45 percent of businesses surveyed felt either some pressure, a lot of pressure, or extreme pressure in accessing financing for the next 12 months.
But what happens if that score is lower than expected?
Luckily, it’s not all doom and gloom, as there are ways to lift your credit rating and give you the best shot at securing finance on the best terms.
One of the better ways to build up your credit score is to establish a trade account with suppliers.
Sometimes it’s as easy as asking “do you offer payment terms to your good customers?”
If you’re able to build one or two trade accounts and, crucially, are able to maintain them then it will paint a picture of a business able to pay its debts.
It may seem like a small step, but it all helps.
Important to establishing and keeping a trade account is maintaining a good relationship with your suppliers – and that means paying them on time within the timeframe of the trade account.
Maintain an open line of communication with your suppliers, and this will also look good when the bureaus assess your business.
Australia has two main credit rating agencies – Equifax and Illion.
These are the agencies which put together the scores based on the information they have.
So it pays to proactively get in touch with them and make sure the information they’re working from is accurate.
We all know a business’ fortunes can change within a short amount of time, so the change may not have been reflected in Equifax’s and Illion’s systems when it comes time to get a loan.
One of the biggest problems responsible people face who pay for everything using cash is that it’s actually harder to get credit when needed, despite the years of responsible behaviour.
When a bureau assesses your business, one of the key things they look for is evidence that you can maintain a loan facility responsibly – and the best way to do that is to have maintained one in the past.
So it can feel like a Catch-22, but the best way to get credit is to…get credit. Don’t take out a loan for the sake of it though – take one out only when needed.
This may not always be so easy when you’re new to business, but credit bureaus love to see a business owner keeping private and business expenses separate.
If you end up using your personal account for large business expenses, then it can look bad when it comes time to apply for a loan.
* Disclosure: Loans are issued by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215. MYOB holds a 30 percent stake in OnDeck and has a referral agreement under which it earns a commission on loans referred to OnDeck. “OnDeck” refers to On Deck Capital Australia Pty Limited ABN 28 603 753 215. OnDeck® is a Registered Trademark. All Rights reserved. Loans subject to lender approval.