There is a greater need for small business owners to be informed and educated about credit scoring and Compulsory Credit Reporting (CCR), according to a recent survey released by OnDeck Australia.
Conducted by OnDeck business partner MYOB, the survey revealed that only 7% of SME owners know their credit score. What’s more, merely half of those who know their score actually checked it within the past 12 months
According to OnDeck, small businesses make up over 99% of all businesses. They contribute 57% of the GDP and hire more than 7 million Australians, or 67% of the country’s total employment.
Cameron Poolman, CEO at OnDeck Australia, told MPA that there are a number of reasons why small business owners are clueless about their commercial credit score. One reason he points out is that they don’t know its purpose.
Although the survey found that 42% of the respondents knew the purpose of a credit score, around 25% didn’t understand what it is, and another 25% believed it’s used for purposes beyond borrowing money. The survey also revealed that only 48% of SME owners know what CCR is. And while over a third of owners felt CCR should include small business credit scores, 44% were uncertain how that would benefit their business.
Under CCR, Australia borrowers will potentially enjoy the same benefits as those enjoyed by countries that already employ a similar system — namely, an increase in market competition where customers can use their improved credit ratings to obtain better deals from lenders
By increasing competition among small businesses, CCR gives Australian lenders equal opportunities to show how they can serve the sector. CCR creates choice and improves products and services that would ultimately benefit the consumer, whether an individual or a small business.
“Consumer awareness of credit scores in Australia is significantly lower than the rest of the world,” said Poolman.
“A recent research report showed that 85% of American consumers were aware of their credit score and over 80% had checked their score in the last year.”
“As all business owners are consumers, this trend is similar for SMEs. Americans are very aware that their credit score impacts their ability to borrow, attain insurance, get employed, utilize utilities, and get a rental property.”
According to Poolman, the survey presents an important opportunity to help educate small business owners on how their credit scores can empower them to create more opportunities for their business by improving their access to funding options. Poolman finds the prevailing lack of understanding on scoring an issue SMEs should confront, given the sector’s size and contribution to the Australian economy. He encourages small business owners to speak with their brokers on how to better understand their business credit score.
“Small businesses are an important contributor to our economy, and we believe there is a role for the industry and the government to take the lead on providing more information and education on credit scoring,” said Poolman