Credit file tips helping SMEs unlock better loan terms: Banjo Loans

Leading non-bank SME lender Banjo Loans is urging Australia’s small and medium business owners to improve their financial literacy by better understanding their credit file.

Banjo currently approves around 55-to-60 per cent of all loan applications it receives, with an average loan size of $200,000. When it declines requests, the lender says it is usually because applicants have failed to demonstrate their ability to service the loan.

Chief Risk Officer at Banjo Andrew Ward says while lenders are primarily looking at a company’s ability to repay loans on time, they are also assessing a business’ intention to repay credit based on past performance. He says this is where an SME’s understanding of its business credit file is critical.

“We use business credit files as a reputational piece. 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,” Ward said.

Given the importance lenders place on credit files for approving loans and credit, Ward says it is crucial that SMEs make sure the information in their files is correct.

“Unfortunately, having incorrect information in credit files is one of the most common mistakes organisations make. You want to ensure that your payment history or any sort of public record matters – such as mortgages, liens or caveats – are accurate.”

Australia’s three credit reporting agencies – Illion, Equifax and Experian – aggregate the information that goes into a credit file and creates a credit score. Because the agencies don’t all keep the same information, they may each have different data.

“Telstra might, for example, send all its defaults information to one bureau and not to the others. You can’t just look at one and necessarily think it’s the same on the other two reports,” Ward said.

Another reason for businesses to access their files is to monitor the number of credit inquiries that have been made under their company’s name.

“The theory is, the more inquiries you make, the more ‘credit hungry’ you are. This has the potential to push your overall credit score downwards because it can look like your business is in financial distress,” Ward added.

Ward says there are some simple steps business can take to maintain a healthy credit file, including:

• Paying your bills, credit facility or loan prepayments on time – “That’s likely the way reporting agencies use information to actually create the credit score in the first place.”
• Lowering credit limits – “High limits can affect your score, even if you’re not using that credit facility or it has a zero balance.”

Ward also recommends visiting websites like creditsmart.org.au for tips and advice on how to prevent fraudulent activity ending up on your business credit file.