Protect Your Business Score From Multiple Loan Applications
Your credit rating is important and needs to be protected. And while paying bills punctually and making loan repayments on time are significant factors there are lots of other things you can do to protect and improve your credit rating. One of the most important is being thoughtful when you apply for credit cards and loans.
When your business needs a cash injection, either to fund growth or to get through a period of challenging cashflow, it’s important to shop around for the best financing deal. Whether that’s an unsecured loan (https://www.capify.com.au/whats-a-unsecured-loan/) or a secured loan will depend on your specific circumstances.
A secured business loan uses an asset such as a residential or commercial property as security against the loan. That offsets the risk by the loan provider which enables them to reduce the lower interest rate on the loan and, potentially, lend a larger amount. An unsecured business loan doesn’t use an asset as security but may have a higher interest rate and limit you to borrowing smaller amounts.
As you shop around, you may be tempted to apply for a small number of potential contenders.
Don’t do it. Loan applications effect your credit rating even if you don’t go through with them.
Each application you make is registered against your business’ credit score. And when you make multiple applications at the same time, your credit score gets dragged down. Worse yet, the applications you make but don’t follow through on may linger on your credit report as some lenders can be slow to clear things off.
As a result, your credit rating may be reduced even though you haven’t actually borrowed from all those finance companies. And that can have a lasting impact. Depending on how the institutions registered those applications on your credit report, they can impact your credit rating for up to two years.
Loan applications can be registered as either an application or as a “hard” search on your credit report. Many lenders will perform a hard search as that lets them assess the risks of lending to you. Hard searches, while prudent for lenders, have a negative effect on your credit score. And while one application is unlikely to have a substantial impact having several applications in progress at the same time, all with lenders that undertake hard searches, means that your credit rating could take a hit.
And when those lenders look at your report they can see the other apple actions and think you’re trying to take out multiple loans at the same time. That could raise a flag that you’re trying to borrow more than you’re letting on.
When shopping around for business finance, make sure you deal with a reputable lender. A good place to start is by checking out the AFIA (Australian Financial Industry Association) (https://www.afia.asn.au/). Capify is a member of the AFIA. Then, look at the specific loans you’re considering and shortlist them according to interest rates, any other fees the lender may apply, the term of the loan and any other criteria that may be important to you.
Once you’ve narrowed the field, talk with the potential lenders until you come up with your preferred lender. If they want to conduct a credit check and request a credit report, ask them if this is will be a hard search on your account and how long it will take them to remove it from your credit report should they not be successful in securing your business.
A process like this will ensure that your credit report will remain devoid of applications that can drag down your credit rating.