Only 7% of small business borrowers know their credit score, demonstrating a greater need for education before they try to access finance.
Survey results from OnDeck Australia and its business partner MYOB found that only half of those that did know their credit score had checked it within the last year.
The survey asked small business owners about their knowledge of business credit scoring and the new comprehensive credit reporting (CCR) regime.
Small businesses comprise over 99% of all businesses, contribute 57% of the GDP, and employ over 7million Australians or 67% of total employment in Australia.
Cameron Poolman, chief executive officer 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.
He said, “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.”
While the Survey found 42% of respondents knew the actual purpose of a credit score, around a quarter didn’t understand what a credit score was. Around another quarter believed it was for purposes other than borrowing money, such as business valuations or paying tax.
Poolman said it was clear from the results that there was a lot of confusion around credit scores and their role in accessing funding.
Only 48% 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% were unsure of the benefit to the business.
Poolman said, “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.
“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.
“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 have that same advantage.
“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.”