Quick Summary
“Bad credit” is not a permanent barrier. Scores below 550 are often considered poor, but specialist lenders look beyond this number.
Specialist and non-bank lenders focus on your recent business health, cash flow, and the story behind your credit history, not just the score itself.
Providing security (like property or equipment), preparing a strong business case, and gathering comprehensive documentation significantly increases your approval chances.
Secured loans, asset finance, and short-term business loans are often the most accessible options for businesses with a complex credit history.
For many hardworking Western Australian business owners, a past financial hiccup can feel like a permanent stain. A major client paying late, an unexpected industry downturn, or the lingering economic effects of the pandemic can all leave a mark on a business’s credit file. This history can make approaching a major bank for finance feel like a dead end, creating significant stress and stalling crucial opportunities for growth and investment.
However, in today’s evolving finance market, a “bad credit” score is not the final word. A new and growing class of specialist and non-bank lenders has emerged, equipped with more sophisticated and realistic assessment methods. These lenders prioritise a business’s current health and future potential over past mistakes. This article provides a practical, no-nonsense roadmap for WA business owners to navigate this landscape, understand what “bad credit” truly means, and learn how to build a compelling case to secure the funding needed to move forward.
Demystifying "Bad Credit" in Australia
What a Credit Score Actually Represents
A credit score is a numerical summary, typically ranging from 0 to either 1,000 or 1,200, derived from the information in a credit report. Lenders use this score as a primary tool to quickly assess the risk associated with lending to a business or individual. The score is influenced by several key factors, including the total amount of money borrowed across all accounts, the number of credit applications made (hard inquiries), and, most importantly, the history of making repayments on time. A higher score indicates to a lender that the applicant is less of a risk, which can lead to higher approval chances and more favourable interest rates.
Understanding the Score Bands from Australia's Main Bureaus
In Australia, there are three main credit reporting bodies: Equifax, Experian, and Illion. It is important for business owners to understand that each bureau uses a slightly different scoring model and terminology, meaning a score from one may not directly translate to another. A score that one bureau classifies as “Average” might be deemed “Fair” by another.
Generally, any score below 550 is considered to be in the “Below Average” or “Poor” category, which is where traditional lenders often draw the line. Specifically, the lower bands are typically defined as:
- Equifax (score out of 1,200): 0 – 459 is "Below Average"
- Experian (score out of 1,000): 0 – 549 is "Below Average"
- illion (score out of 1,000): 0 – 299 is "Low"
It is particularly relevant for West Australian business owners to note that the state’s average Equifax score is 565.7, which is lower than the national average and sits precariously close to the “Below Average” threshold. This indicates that a significant number of WA businesses may fall into a category that requires a more nuanced approach to securing finance.
The "Negative Listings" That Really Matter
Beyond the overall score, lenders look at specific “negative listings” on a credit report. These events have a direct impact on creditworthiness and remain on a file for a set period.
-
Missed Payments:
A repayment on a credit product (like a loan or credit card) that is made more than 14 days after its due date can be recorded on a credit report. This repayment history information stays on the report for 2 years. -
Defaults:
A default can be listed if a payment of $150 or more is overdue by at least 60 days and the lender has followed a strict notification process. A default remains on a credit report for 5 years, even if the amount has been paid in full. -
Serious Credit Infringements (Clearouts):
This is a more severe listing that occurs when a lender has been unable to make contact with a borrower and has a reasonable belief that the borrower has decided not to pay the debt. A serious credit infringement remains on a credit report for 7 years. -
Court Judgements and Bankruptcy:
These are among the most serious listings and can significantly impact the ability to obtain credit.
The data on a credit report tells a story, but it is not the final verdict. While a major bank’s automated system might see a score of 550 and issue an immediate rejection, a specialist lender will look deeper. A score of 550 resulting from multiple recent credit applications signals current financial distress and is viewed negatively. In contrast, the same score caused by a single, paid default from three years ago during a documented industry downturn tells a very different story—one of a historical, explainable event. This distinction is crucial. Business owners should shift their perspective from fearing their score to understanding its composition. By obtaining a copy of their report, they can identify the specific listings and prepare a clear narrative to provide context, transforming a simple data point into a compelling business case for a loan.
The Specialist Lender's Perspective: Looking Beyond the Score
Why the Big Banks Often Say "No"
Australia’s major banks operate under strict regulatory oversight from the Australian Prudential Regulation Authority (APRA). They typically use a “standardised approach” to assessing credit risk, which relies heavily on automated systems and rigid criteria. These systems are programmed to weigh historical credit scores heavily and require a complete set of traditional documentation, such as two full years of finalised tax returns and financial statements. For a business with a complex history, a recent start-up, or financials that don’t fit the standard mould, a low score or incomplete documentation often results in an automatic decline without human consideration.
A Different Approach: How Specialist Lenders Assess Risk
Specialist and non-bank lenders operate with a more flexible and individualised approach, often because they are more concerned with a business’s future prospects than its past performance. Their primary goal is to conduct a thorough “affordability” or “serviceability” assessment to determine if the business has the current capacity to manage and repay the loan.
Instead of relying solely on historical data, these lenders perform a deep analysis of recent cash flow by examining 6 to 12 months of business bank transaction data. This allows them to see the real-time financial health of the business, classifying inflows (like sales revenue) and outflows (like supplier payments and wages) to build an accurate picture of its operational viability. This focus on current performance means that a business demonstrating strong recent turnover and good management can often secure finance despite a historical blemish on its credit file.
Alternative Documentation ("Alt-Doc") Loans
A significant advantage offered by specialist lenders is their willingness to accept alternative forms of documentation, commonly known as “alt-doc” or “low-doc” loans. This is particularly beneficial for self-employed individuals, contractors, or businesses that haven’t yet completed two years of trading. Instead of requiring full tax returns, these lenders can verify income and business health using documents such as:
- Recent Business Activity Statements (BAS)
- 6-12 months of business bank statements
- A verification letter or declaration from a qualified accountant
The existence and growth of the specialist lending market is a direct result of the major banks’ increasing rigidity. Regulatory pressures have made traditional banks more risk-averse, particularly towards SME lending that isn’t secured by residential property, creating a significant gap in the market. Non-bank and fintech lenders, with different funding models and a higher appetite for risk, have emerged to fill this void. This represents a fundamental and permanent shift in the Australian financial landscape. For a WA business owner, this means the bank is no longer the only option. An entire segment of the finance industry now exists specifically to fund businesses with unique circumstances, using assessment methods that are far more aligned with the realities of running an SME.
Australian Credit Score Bands: A Tri-Bureau Comparison
Credit Rating
Equifax
Experian
illion
Excellent
Equifax
853 - 1200
Experian
800 - 1000
illion
800 - 1000
Very Good
Equifax
735 - 852
Experian
700 - 799
illion
700 - 799
Good
Equifax
661 - 734
Experian
625 - 699
illion
500 - 699
Average / Fair
Equifax
460 - 660
Experian
550 - 624
illion
300 - 499
Below Average / Poor
Equifax
0 - 459
Experian
0 - 549
illion
0 - 299
Building Your Case: Practical Steps to Improve Approval Chances
It's a Business Case, Not Just an Application
To secure finance with a complex history, it is essential to shift from a passive application mindset to a proactive one of presenting a compelling business case. Lenders, especially specialist ones, need to be convinced of the business’s future profitability and its ability to service the new debt. This involves preparing a concise but clear business plan that outlines the business’s goals, its target market, and, most importantly, exactly how the requested funds will be used to generate a return on investment.
It's a Business Case, Not Just an Application
A well-prepared application demonstrates professionalism and makes the credit assessor’s job easier, speeding up the process. A comprehensive document checklist should include:
- Financial Statements: Recent Profit & Loss statements and Balance Sheets, preferably prepared by an accountant.
- Tax Documents: The last 1-2 years of both personal and business tax returns, along with ATO Notices of Assessment.
- Business Activity Statements (BAS): Recent BAS to show current turnover.
- Bank Statements: At least the last 6-12 months of business bank account statements.
- Identification: Proof of ID for all directors and guarantors.
- Forecasts: For projections-based applications, include detailed cash-flow forecasts.
Explain the "Why": The Story Behind the Score
A credit report shows what happened, but not why. It is crucial to prepare a brief, honest, and factual explanation for any significant negative listings. Was a default caused by a one-off event, such as a major client failing to pay, a medical emergency, or a specific industry downturn?. Providing this context allows a human credit assessor at a specialist lender to look beyond the black-and-white data and make a more holistic assessment of the risk.
Leverage Your Strengths: Offer Security
Providing collateral is the single most effective way to lower a lender’s perceived risk and significantly improve the chances of approval for a bad credit business loan. When a loan is secured, the lender has an asset they can sell to recoup their funds in a worst-case scenario. This security makes the application much stronger. Assets that can be used as collateral include commercial property, residential property (owned by the director), or unencumbered business assets like trucks, trailers, and heavy machinery.
Frequently Asked Questions
What credit score is officially considered "bad" in Australia?
There is no single official number, but scores below 550 are generally considered ‘Below Average’ or ‘Poor’ by the main credit bureaus and will limit your options with traditional banks.
How long does a default stay on my business credit report?
A standard default listing remains on your credit report for 5 years from the date it is listed, even after you have paid the debt.
Will checking my own credit score lower it?
No, checking your own credit report or score is known as a ‘soft inquiry’ and has no impact on your credit score.
Do specialist lenders charge higher interest rates?
Often, yes. The interest rate is priced to reflect the higher perceived risk of the loan. However, for a business that would otherwise be unable to secure funding, accessing finance at a higher rate can be a crucial enabler of growth or stability.
What is an "alt-doc" loan?
“Alt-doc” stands for “alternative documentation.” It is a type of loan where lenders accept documents like Business Activity Statements (BAS), bank statements, or an accountant’s letter to verify income instead of full tax returns. This is ideal for self-employed individuals or new businesses.
Can I get a business loan if I have a past bankruptcy?
It is extremely difficult with major banks. However, some specialist lenders will consider applications from individuals who have been discharged from bankruptcy, though they will almost always require property as security for the loan.
Will making too many loan applications hurt my chances?
Yes. Every application for credit is recorded as a ‘hard inquiry’ on your report and remains there for five years. Multiple hard inquiries in a short period can lower your score, as it can signal financial distress to lenders.
Is it better to get a secured or unsecured loan with bad credit?
A secured loan is almost always the better and more accessible option. Using an asset as collateral significantly reduces the lender’s risk, which in turn increases your approval chances and can result in a more favourable interest rate.
What's the minimum trading history I need for a bad credit business loan?
Some online lenders like Bizcap and Prospa will consider businesses with as little as 4-6 months of trading history, provided they meet minimum monthly revenue targets (e.g., $6,000-$12,000).
Can I get a loan to pay off an ATO tax debt?
Yes, this is a common reason for seeking specialist finance. Some non-bank and private lenders offer products specifically designed to consolidate and pay out outstanding ATO debt, which is typically secured against property or other business assets.
How can a finance broker help if I have bad credit?
An experienced finance broker has deep knowledge of the specific credit policies and risk appetites of dozens of specialist lenders. They can match your unique situation to the lender most likely to approve it, which prevents multiple failed applications and protects your credit score. They are also experts at packaging your application to present your business in the best possible light.
What Finance Options Are Actually Accessible?
Secured vs. Unsecured Loans
The distinction between secured and unsecured finance is critical for businesses with a complex credit history. A secured loan is backed by a tangible asset (collateral). This reduces the lender’s risk, making these loans more accessible, available in larger amounts, and often priced with a lower interest rate. An unsecured loan is not backed by any collateral and is granted based solely on the business’s cash flow and credit history. Due to the higher risk for the lender, these loans are harder to obtain, typically smaller in value, and come with higher interest rates. For a business with impaired credit, secured lending options are the most viable pathway to finance.
Short-Term Business Loans & Lines of Credit
These products are a specialty of the online and fintech lending market. Lenders in this space, such as Prospa and Bizcap, often place a higher emphasis on recent monthly turnover and trading history than on a historical credit score. Key features include extremely fast application and funding times (sometimes within hours), minimal documentation requirements, and accessibility for businesses with short trading histories. The trade-off is typically higher interest rates and more frequent repayment schedules (daily or weekly), making them best suited for urgent working capital needs rather than long-term investment.
Asset Finance (Chattel Mortgage)
This is an ideal solution for purchasing vehicles or equipment, a common need for businesses in WA’s key industries like transport, mining services, agriculture, and construction. With a chattel mortgage, the asset being purchased serves as the security for the loan itself. This structure inherently reduces the lender’s risk, making it one of the most accessible forms of finance, even for businesses with a less-than-perfect credit history.
Invoice and Trade Finance
For businesses that have strong sales but suffer from slow-paying customers, invoice finance can be a powerful tool. This type of facility allows a business to borrow against the value of its outstanding invoices (its accounts receivable ledger). A lender will typically advance up to 80-90% of the invoice value immediately, providing instant cash flow. This converts unpaid sales into working capital, making it an excellent solution for managing cash flow gaps without needing to take on traditional term debt.
If you have a complex credit history and need to explore your finance options, speak to the expert team at Varlo Finance today.
A blemish on a credit file is a common challenge for many WA businesses, but it is far from an insurmountable barrier to finance. The key to moving forward is to understand what your credit report contains, recognise that the lending landscape has evolved far beyond the major banks, and know how to build a strong, evidence-based case for funding. The focus must shift from past issues to demonstrating current business health and future viability.
The most powerful strategy is to be proactive. Do not wait for a “no” from the bank to start exploring your options. Get your documentation in order, understand the story behind your numbers, and leverage your business’s strengths, such as valuable assets or strong recent cash flow. Partnering with a finance expert who understands the specialist lending market can be the difference between rejection and securing the capital needed to grow. This is especially true when dealing with complex situations like a looming commercial balloon refinance payment, where specialist knowledge is critical.