South Africa’s credit rating is under intense scrutiny as experts fear that the sovereign ratings downgrades may affect the country and its companies’ ability to tap international capital markets for funds. Similarly, poor credit records – either on the part of a business or its owners – may affect the ability of a business to secure funds for growth.
Quite simply, credit records are an assessment of an individual or a business’ ability to meet their debt obligations and commitments based on historic records. “From a bank’s point of view, it is almost demonstration of your character. If you are someone that remains true, is steadfast and regimental around making the commitments to your creditors, it is a good signal. It tells us that we’re dealing with someone that who takes those commitments seriously and makes those commitments,” said Alan Shannon, head of relationship banking sales at Nedbank.
He went on to say that a bank’s approach to lending based on credit records is similar to that of individuals. “If we – in our personal capacities – were to lend money to a friend and that friend was either slow in paying us back or doesn’t pay us back at all, how likely would we be to lend money to that friend again?” Every single credit application will be scrutinised against an entrepreneur’s personal credit record as well as that of the business before a decision on whether to grant credit is made. A good credit record, which requires regular and timeous payments to all creditors as well as reasonable amount of credit relative to income earned or generated, increases the chances of success when applying for funding. However, in some cases credit applications may be turned down if the entrepreneur or business already has a large unused credit facility with one credit provider and is applying for credit with another credit provider.
According to Nedbank’s Essential Guide for Small-Business Owners, fixing a bad credit record is neither cheap nor easy. It is advisable to find out which credit provider has recorded adverse information against an individual or a business with the credit bureau, gather information about the outstanding debt and the best approach to correct the situation, which often requires the debt to be settled.
Once the debt is settled, it may take months for the adverse credit record to be cleared. Banks usually accept proof that the underlying credit issue has been resolved when reviewing credit applications, said Nedbank.
Shannon stressed the importance of reviewing one’s personal and business credit record regularly. South Africans are entitled to one free credit report from any credit bureau every year.
“You don’t want to be in a situation where you come to a bank to apply for credit and can’t explain why your credit rating maybe low. If you do have a credit rating that isn’t particularly good and you know about it, you can offer us the answer as to why that is the case before we find out about it. It would help your case if you show us that you have a firm arrangement in place to meet an obligation that you may not have met in the past,” he explained.
He said the bank would also take its own records of its retail banking and small business clients into consideration, especially those with long standing relationships with Nedbank, when reviewing credit applications.
Whether you are starting a business, running an established business or looking to expand, you need a reliable, affordable banking partner who understands the challenges of your business and responds with flexible solutions to your needs. Nedbank has extensive experience in serving small businesses and offers a comprehensive suite of payment, investment and finance solutions, as well as industry specialisation and services that extend beyond banking. Why not contact one of Nedbank’s small business experts to help you see money differently and take your business to the next level?