Cash flow and credit history hinder SME loan access

by AB12 May 2016
Most Australian small and medium enterprises (SMEs) are refused business loans because of cash flow problems and a blemished credit history, according to a national study.

The first quarterly Online Small Business Lending Index, released by the online scoring tool, found cash flow issues and a poor credit history accounted for three quarters of the 59% of small business online loan applications being rejected. 

SME Credit Score co-founder James Watson said lenders need to be more flexible and understanding when it comes to small businesses. 

“Some small businesses, especially in trades and retail industries, transact primarily in cash and if this money never enters a bank account, it cannot be verified and can lead to a healthy business being rejected for a loan,” he said.

SME Credit Score co-founder Jonathan Raymond said it is also worth remembering businesses going online for loan applications tend to be owned by a younger demographic with less business experience.

“The approval rates from the first quarterly index reflect this,” he said.

“All small businesses in the index have been operating for a minimum of 12 months and have between $200,000 and $5 million in annual revenue. 

“With the rapid growth of online small business lending in Australia, this index will shine a light on approval rates for business loans.”

Watson added that one of the motivations in establishing SME Credit Score was to provide two million Australian small businesses with a free credit scoring service “to let them see what lenders see”.