Media Release
Small business credit lock down pushes families into more debt
Small businesses have been forced to rely on personal credit due to what a former broker turned credit reporting accuracy advocate says are difficult times for access to credit for SME’s, with the family credit rating copping the fall out.
A recent Reserve Bank of Australia report reveals that small businesses are more likely to have household debt due probably to a reduced access to business credit.
The RBA’s Small Business Finance Roundtable report shows that for unincorporated business, the overall financial position of the business is tied up with the household.[1]
“Households owning businesses are more likely to have debt (including their business debt) than other households, with around 80 per cent of business-owning households having debt in 2010, compared to 66 per cent of other households, and they tend to have higher household debt relative to income,” the report says.
“When the balance sheets of unincorporated small businesses are compared with those of the households that own those businesses, the households are much more likely to have debt than the businesses. This suggests that many small businesses may be financed indirectly by household borrowing rather than through explicit business borrowing.”
The RBA also reports that tighter lending standards have a greater impact on small businesses and the reassessment of risk more generally by banks has also disproportionately affected small companies.
This sentiment is echoed by former broker Graham Doessel, now owner of credit repair business MyCRA and board member of newly formed Credit Repair Industry Association of Australasia. He says lending criteria since the Global Financial Crisis has tightened considerably, with many small businesses finding it near to impossible to qualify for credit.
“The loops and hoops businesses need to jump through to secure funds for expansion is unnecessary and shuts many small businesses out. The process could be better streamlined to accommodate this huge market, meaning less would need to rely on their personal credit rating,” Mr Doessel says.
Mr Doessel says the danger with small business owners involving personal credit in their small business borrowing is the chance of business debt and bad credit history spilling over to the personal credit rating.
“Small businesses are on a very slippery slope when they use their access to consumer credit to fund business debt on a regular basis. If they happen to run into trouble with repayments these people are copping defaults on both their consumer and commercial credit files, effectively ruining not only their credit rating but potentially that of their spouse as well,” he warns.
This comes as Smart Company reports today on new research by software firm MYOB showing 28% of small businesses use their home loan to finance their business in some way.[2]
The survey of over 1,000 SMEs, shows how tightly linked mortgage rates and business finance really are.
Just under 15% of SMEs utilise a line of credit through their home loan to help fund their business, 5% have funded their business by increasing the value of their home loan and 5% funded their business by redrawing against equity in their mortgage.
A further 4% have used cash sitting in their mortgage offset account to pump into their business.
“For many business owners, even those without commercial finance, an interest rate move doesn’t just affect their ability to repay the family home loan. For too many, home loan interest rate moves also affect their ability to keep their livelihood on an even keel,” MYOB chief Tim Reed says.
/ENDS.
Please contact:
Graham Doessel – Founder and CEO MyCRA Ph: 3124 7133
Lisa Brewster – Media Relations MyCRA Mob: 0450 554 007 media@mycra.com.au
http://www.mycra.com.au/ www.mycra.com.au.blog
MyCRA Credit Rating Repairs is Australia’s leader in credit rating repairs. We permanently remove defaults from credit files.
Image: Pixomar: www.FreeDigitalPhotos.net
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