Why are SMEs in the dark about their credit

By Luke O'Mahony

Nearly half (44 per cent) of small and medium businesses – SMEs – have never checked their credit score, according to research from RateSetter’s Business Finance division.

Credit scores are used by lenders to determine whether businesses have a good track record of repaying debt, and are therefore one of the key factors affecting an SME’s ability to get a loan.

Credit reference agencies, such as Experian and Dun & Bradstreet, compile reports based on information available to them. That includes details of all the loans and other forms of credit that a business has had in the past and, crucially, whether a business has kept within the agreement and paid the money back. Any other potential issues, such as County Court Judgments, are also flagged.

“Checking your business credit history is one of the simplest things you can do to ensure that you have the best chance of securing the finance your business needs in order to grow and become more productive”, said Mark Williams, Head of Business Credit at RateSetter.

“Even a simple mistake in your credit history such as an incorrect address can affect lenders’ perception of your business, meaning that you’re unable to secure a loan or get good terms on credit agreements.”

RateSetter’s research found that 44 per cent of SMEs had never checked their credit score, and a further 6 per cent had not checked their score within the last 12 months. Only one in five (18 per cent) had checked within the last six months.

We’ve compiled seven tips to help businesses to ensure that their credit history is as good as it can be:

  1. Check your own credit score with one of the leading agencies. Credit reports are based on the information in the public domain about your business. We’ve partnered with Experian, to allow you to check your business’s credit score for free – you can do so here.

  2. Identify any errors. Use your own copies of relevant documentation if necessary, and have any mistakes corrected or removed with the agency. Even a simple mistake such as an incorrect address can affect your credit history.

  3. Remove negative information. Information can usually be removed if it’s more than six years old, so ensure that there are no black marks on your history unnecessarily.

  4. Maintain a good trading record. Pay your bills on time. If you pay CCJs within 28 days, they should not appear on your credit record.

  5. Check your personal credit history. Even though you may be applying for a business loan, make sure that your own personal credit history is good too. In the absence of having enough information on your company, lenders may look at this as well.

  6. Ensure your company accounts are accurate. File them on time at Companies House. Late filing is often seen as a sign of financial difficulty.

  7. Give your customers clear terms and conditions. Make certain that all supplier payments have been correctly recorded.