One in two small businesses are unaware about business credit scores, and it’s an area where brokers can add plenty of value.
While most Australians are familiar with personal credit scores, chances are your SME clients have no idea that their business also has a credit score.
Research by leading online SME lender OnDeck, found the majority (53%) of Australian SME owners are in the dark about business credit scores. But awareness is growing, driven by the launch of OnDeck’s free online credit score calculator in 2016.
Since the launch, more than 10,000 SME owners have used the tool to check their score. Today, 47% of SME owners realise their business has a credit score, an uptick of 5% over the last 12 months.
However, there’s still a big knowledge gap, and 76% of SME owners who are unaware of business credit scores say it would be useful to know their number.
Supporting your SME clients to improve their score
There’s a strong business case for brokers having conversations with SME clients around business credit scores.
Cameron Poolman, CEO of OnDeck Australia explains, “Our research indicates that one in four SMEs plan to seek additional business finance in the future, and business credit scores can go a long way to shaping the availability and cost of credit.”
OnDeck’s data confirms that Australia’s SMEs tend to have healthy credit scores.
Of the 10,000 scores provided by OnDeck’s credit score tool, the average was 763, which is regarded as ‘very good’. Close to nine out of ten SMEs achieved a score of ‘good’ or above.
Checking a business credit score only takes a minute, however brokers can back this up with advice on how their SME clients can improve their score. Poolman says the reward for SME clients can be “improved availability of trade credit, greater access to working capital, and lower lending rates.”
Five tips to boost business credit scores:
Poolman offers five tips for brokers to share with their SME clients to lift business credit scores.
- Pay bills on time – Late payments and defaults can lead to a lower credit score.
- Carefully manage applications for new credit – An SME’s credit history will include applications for new credit including those that are not successful. Multiple applications can leave lenders wondering why the business has been rejected for finance by other lenders.
- Maintain a manageable level of debt – short term loans can help SMEs seize business opportunities but the key is to maintain a level of debt that is manageable within an SME’s current and forecast cash flow.
- Recognise the merits of different types of credit – aim to match cash flow needs with appropriate finance strategies. Using long term debt for short term needs can lead to cash flow problems and unnecessary interest charges.
- Monitor the SME’s credit score – OnDeck’s alert service allows real-time monitoring of changes in an SME’s credit score, allowing owners to keep tabs on the venture’s credit worthiness.
Brokers can help SME clients check their business credit scores here.
Maximise choice for your clients with OnDeck
As the small business loan specialist, we’re here to help you and your SME clients thrive.
Our short-term business loans from $10,000 – $250,000 are ideal for SMEs who are seeking finance to fund their business growth – be it hiring more staff, fitting out a new shop front, or relaunching a website.
Get in touch with your local Business Developer today for more information.