Can I get business finance with bad credit?

“Bad credit” isn’t a single thing. It covers anything on a credit report that makes a lender see more risk. Some issues shut the door with most lenders, while others just reduce your choices. The first step is to find out exactly what is on your reports and whether it is correct.

For bad credit loan options, see our bad credit business loans page. This article explains what lenders see and what you can do about it.

What “bad credit” usually means

These are the most common items that cause problems:

• Defaults. The OAIC says a credit provider may list a default when a payment of $150 or more is at least 60 days overdue and the required notices have been sent.
• Court judgments relating to credit.
• Serious credit infringements. This is a credit provider’s opinion, recorded on your report, that you have committed one.
• Personal insolvency. This includes bankruptcy and debt agreements, taken from the National Personal Insolvency Index.
• Missed repayments. Repayment history shows whether you paid consumer credit on time.
• Many recent applications. Moneysmart says too many applications in a short time can lower your credit score.
• Business tax debt. The ATO may report a business’s tax debt to credit reporting bureaus if at least $100,000 is overdue by more than 90 days and the business isn’t engaging with the ATO to manage it.
• A previous business failure, such as a company you ran that went into liquidation. Lenders will usually ask about it.

How long information stays on a credit report

The OAIC sets these retention periods:

Information	How long it stays
Credit enquiry	5 years
Repayment history	2 years
Financial hardship information	1 year
Default	5 years
Court judgment	5 years
Serious credit infringement	7 years
Bankruptcy	The later of 5 years from the day you became bankrupt or 2 years from the day it ended
Debt agreement	The later of 5 years from when it was made or 2 years from when it was terminated

Paying a default doesn’t remove it. The OAIC says the listing remains, but the credit provider updates it to show the payment was made. A paid default still looks better to a lender than an unpaid one.

AFSA notes that many records on the National Personal Insolvency Index remain there permanently, even after the credit reporting period ends. A lender that searches the index can still see a past bankruptcy.

Business credit vs director credit

Most lenders check two things:

• The business’s credit file. This covers the company or business itself, such as defaults listed against the ABN or company, court actions and any ATO debt disclosure.
• Each director’s or owner’s personal credit report. Lenders check these because directors usually sign a personal guarantee.

For a sole trader, the business and personal files are closely linked. For a company, a clean business file doesn’t make up for a director’s recent bankruptcy, and the reverse is also true. The OAIC notes that your consumer credit report can also include information about commercial credit you have applied for.

Get your free credit reports

The OAIC says a credit reporting body “must give you access to your consumer credit report for free once every 3 months”. You can also get a free copy if:

• you’ve been refused credit within the past 90 days, or
• your credit information has been corrected.

The OAIC names two credit reporting bodies: Equifax and Experian. They may hold different information, so request a report from each. Moneysmart suggests checking at least once a year.

This free access right covers your consumer credit report. If your business is a company, ask the credit reporting bodies how to get the company’s commercial credit report.

Fix errors, for free

Moneysmart lists the kinds of errors you can have fixed for free: incorrect personal details, duplicate debts, wrong amounts and reporting mistakes by a lender. If you find one:

1. Contact the credit provider that listed the information, or any credit reporting body. The OAIC calls this a “no wrong door” approach. Whoever you ask must consult others if they can’t fix it themselves.
2. Keep evidence, such as statements, payment receipts and letters.
3. Allow time. If they are satisfied the information is incorrect, they must take reasonable steps to correct it within 30 days, or a longer period you agree to. They must also give you written notice.
4. Escalate if needed. If you’re not happy with the response, the OAIC explains how to complain, including through an external dispute resolution scheme. A financial counsellor or community lawyer can help you with this.

The OAIC says there is no charge for a correction. Moneysmart warns that credit repair companies “may charge you high fees for things you can do by yourself for free”. It also says “you can’t change or remove any information on your credit report that’s correct — even if it’s negative”. If you do use a credit repair business, Moneysmart suggests you first check that it is licensed on ASIC’s website.

What lenders may still consider

Lenders’ policies vary widely. Some of the things that can help:

• Age and size of the issue. An old default for a small amount is viewed very differently from a recent judgment.
• Whether it’s been resolved. A paid default, a completed payment arrangement or a discharged bankruptcy counts in your favour.
• A clear explanation. A short written account of what happened and what has changed, backed up by evidence.
• Current trading. Steady deposits, few dishonours and up-to-date lodgements show how the business is running now.
• Security. Property security can offset credit concerns. Some specialist lenders focus mainly on the security and the exit plan. See property-backed business finance.
• ATO position. A tax debt that is on a payment plan and being met is usually viewed better than one that isn’t. The ATO also says it will not report a business tax debt while you are effectively engaging with it, for example through a payment plan you are keeping to.

Realistic expectations

• Higher cost. Fewer lenders will compete for your application, and they will price for the extra risk.
• Security is often needed. Unsecured options narrow sharply with recent defaults or judgments.
• Lower amounts or shorter terms are common.
• More questions. Expect to explain your history and to provide more documents.

Be wary of anyone who promises approval regardless of your credit history. business.gov.au suggests checking that a lender is legitimate before you apply.

Step by step

1. Get your free credit reports from both Equifax and Experian. Do this for every director or owner.
2. Read every entry. Note anything that is wrong, out of date or not yours.
3. Ask the credit provider or credit reporting body to correct errors, and keep copies of everything.
4. Pay or arrange any outstanding defaults you can. Get written confirmation.
5. Bring your ATO lodgements up to date. If you owe the ATO, talk to it about an ATO payment plan.
6. Write a short, factual explanation of any past problems and what has changed since.
7. Don’t send multiple applications at once. Moneysmart says each application is noted on your report.
8. If you’re refused, business.gov.au suggests asking the lender for feedback, then working on what you can change.

Important things to know

• Borrowing may not be the answer. If you’re behind on existing debts, new credit can deepen the problem. A free financial counsellor, your accountant, or the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) may be a better first step. See when borrowing is not the answer.
• Correct negative information stays. Time and a better track record are what improve your file.
• Personal guarantees are personal. If you guarantee a business loan and it isn’t repaid, a default can be listed on your own credit report.
• Be upfront. Lenders find credit issues when they check your reports. An issue you disclose and explain is much less damaging than one they find themselves.