Are SMEs unknowingly missing out on financial opportunities?
SMEs could be unwittingly harming their chances of securing finances for growth, according to new research from Experian.
The SME Reputation Index from the global information services company revealed the many different attitudes that are taken by decision-makers when looking to safeguard their firm’s financial reputation.
Only one in eight financial decision-makers had a complete awareness of the factors that could influence their credit score in either a positive or negative way.
This means 87% of SME businesses in the UK – some 1.9 million firms – only have limited awareness of how to safeguard their credit ratings.
Only two in five decision-makers had ever checked their business credit report, while micro businesses with between one and nine staff were the least likely to have checked.
Of those to check, 44% had done so more than six months before the survey and they listed curiosity, rather than a desire to influence their access to credit, as their reason for doing so.
Given the importance of a business credit score to the decision-making process for a lender, having an awareness of it is as a business can increase opportunities.
Failing to access credit could impact the company in the long-term and could lead to corporate recovery if financial issues are not dealt with appropriately.
Those who know the status of their firm can request finances on the basis of it, with a sound knowledge of what is required to make their business more appealing to lenders.
Understanding what influences a credit rating
This requires staff to understand what factors could influence the business credit score, especially those actions that are deemed to be negative.
For instance, a history of bankruptcy, or numerous applications for credit in a short time are not viewed in a positive light by lenders.
Around a third of financial decision-makers understood the relevance of one of the two factors, but not both.
The report also highlighted a lack of knowledge relating to what positive factors can influence a credit rating.
These can include prompt payment and filing all accounts on time, while some decision-makers wrongly believed that a healthy bank balance, staff recruitment and moving to larger premises would have an impact.
Increasing the potential for access to finance can make all the difference for smaller firms where great sums are not readily available.
By Phil Smith