A recent survey has found only 7 per cent of small business owners know their business credit score and the majority are also ignorant of Compulsory Credit Reporting (CCR) and how it could impact their ability to get finance.
The survey was conducted by cloud accounting solution provider MYOB on behalf of OnDeck. It studied the knowledge of small business owners have surrounding credit scoring and CCR.
CCR was introduced in July of 2018 and delivers mandatory obligations for credit providers to record positive credit information on consumer’s credit histories as well as the negative.
The survey found while 42 per cent of respondents had heard of a credit score, a quarter did not know what a credit score was and a further 25 per cent believed a credit score was for purposes other than borrowing money such as business valuations or paying tax.
Cameron Poolman, CEO of OnDeck Australia, said there was a disconnect between the small business owner’s knowledge about the benefits of credit scoring and how a lack of knowledge could impact their understanding of the financial position of their business.
“There is an important education opportunity here to help small business owners recognise how knowing their credit score can inform and empower them by potentially creating more opportunities for their business through improved access to funding and funding options. The prevailing lack of understanding around scoring is an issue for small business, especially given the size and importance of the sector to the Australian economy.”
Poolman said it was clear from the results that there was a lot of confusion around credit scores and their role in accessing funding.
“While not all small businesses need access to funding, being informed on how, when and why to get funding is an important part of running a successful business.”
The survey found almost half (48 per cent) of small business owners surveyed knew about CCR. Just over a third of owners thought CCR should be extended to include small business credit scores, however 44 per cent were unsure of the benefit to the business.
“While CCR includes small business owners as consumers, a notable exception to the proposed new legislation around CCR is the exclusion of the small business itself,” Poolman said. “Nine in ten businesses in Australia are part of this sector but small business credit scoring is not captured under the new changes to credit reporting under CCR.
“The increased competition potentially created by CCR would give all lenders in Australia a fair opportunity to show how they can support the small business sector of our economy. It creates choice and improved products and services through increased innovation; the end user, whether an individual or a small business, is the greatest beneficiary of such a system.”
Poolman suggested the introduction of CCR could have appositive impact for small business owners.
“The introduction of CCR in other countries has highlighted how the market and the customer can benefit from increased competition where customers use their improved credit ratings to get better deals from lenders. Under CCR, Australian borrowers will potentially havethatsameadvantage,”hesaid.
“CCR is a positive change for a majority of users of Australia’s financial services system. The increased competition generated by CCR will have flow on effects that go way beyond creating a healthier financial services landscape in Australia.”