If you are planning on applying for a business loan, it is crucial that you, as the principal of that business, know the status of your free credit report as per the credit bureaus in South Africa.

Creditors can run a personal credit check in addition to a commercial credit check when you apply for a business loan.

Your free credit report contains vital information that can be either detrimental or beneficial to your company’s chances of obtaining a loan at a desirable interest rate.

Lenders will create an overall risk profile by combining your personal and business credit habits.

 

Your free credit report from South Africa credit bureau Compuscan is an important consideration when applying for a business loan.

 

Business information credit reports from South African credit bureau Compuscan

When a lender is considering your business’ loan application, they will look at your company’s commercial credit report. Your commercial credit report allows them to determine the potential risk of your enterprise forfeiting on repayments and helps them set the terms for the loan.

Your business’ commercial credit report contains information about the size and trading history of your company. It also notes the demographic details of its principals and provides each business with a commercial credit score developed by the credit bureau (South Africa).

Your business credit report is broken up into the following categories:

Company information

This section contains all the details of your company like company type, industrial classification, financial year-end date, company status, number of authorised shares, company registration number, registration date, business start date, tax number, vat number, physical address, postal address, legal name and the trading name.

Auditors information

This section contains a list of auditors.

Commercial judgments

If there are any judgments against your company, they will be listed here. It provides all the information about a judgment including the case number, judgement type, reason, amount, date issued, attorney name and plaintiff.

Commercial Notices

All commercial notices and details are mentioned here, including case numbers, notice type, amount, reasons, status, date issued, court type, court name and plaintiff.

Active principal information

This section lists all the information of active principals, including their full names, Id numbers, principal type and the principal’s interest in the company.

This is also where you can see the personal credit score of the active principals and the principal’s bureau data including SAFPS alerts, adverse accounts, debt restructuring, active companies, judgments, written off accounts and properties owned.

There is also a list of any associated companies linked to the principal and all associated addresses link to the principal of the company.

Non-active principal information

This section lists all the information of the non-active principals, including their full names, Id numbers, principal type and status of the principal.

This is also where you can see the personal credit score of the active principals and the principal’s bureau data including SAFPS alerts, adverse accounts, debt restructuring, active companies, judgments, written off accounts and properties owned.

There is also a list of any associated companies linked to the principal and all associated addresses link to the principal of the company.

Properties owned

This section lists all details regarding properties owned by the company, including erf number, status, property type, deed town and registration division, purchase price, registration date, purchase date.

It also lists bond particulars, title deed number and unit details.

Previous enquiries

This section contains a list of previous enquiries.

 

Get better loan terms by ensuring your free credit report from South Africa credit bureau Compuscan is correct and up to date.

 

Your business information credit report also contains your business credit score.   

Every business has a business credit score. It is a number that reflects the company’s business behaviour and determines the creditworthiness of your business. Credit bureaus calculate your business credit score by taking into account whether you make payments on time, pay your creditors within the agreed time frame and whether there are any legal filings against your company. Included in their calculations are trade references which refer to a reference provided by creditors on how debtors conduct their accounts. Bankruptcy and judgments and are amongst the legal filings that should be monitored on your commercial credit report as they can negatively affect your business credit score.

Your business information score at Compuscan ranges from 400 – 760, and the higher the number, the lower the risk. This scale means you want your score to be as close to 760 as possible.

Experian and Compuscan compile commercial credit reports and generate business credit scores. Both South African credit bureaus sell business information credit reports.

It is important to review your business credit report regularly. Mistakes or irregularities can affect your business’s credit score, leading to higher interest rates and compromising your business’s ability to get a loan.

Once you are familiar with your commercial credit score, you can aim to improve it by paying bills and suppliers on time, avoiding legal filings and monitoring your business credit report annually.

A business credit report and score are beneficial tools for creditors to make responsible lending decisions. It equips them with the necessary information to protect their investment and minimise the risk of reckless lending.

A few other benefits of a healthy business credit report includes:

  • Peace of mind for investors who would like to invest in your company
  • Trust and better terms from suppliers
  • Faster loan approvals
  • Higher loan limits
  • Lower interest rates
  • Landlords are more likely to rent a space to your business if you have an excellent commercial credit score.
  • It will be easier and more profitable to sell your business if it has an impressive commercial credit report.

An excellent business credit score is therefore also beneficial to suppliers, landlords, service providers, business investors and any other entity interested in doing business with you.

Creditors will, however, not only be looking at your enterprise’s business credit report to decide whether your company is high or low risk for a loan. They will also be looking into the personal credit reports of all owners and partners – or principals – of your business. Additionally, each creditor has its own list of best business practices and due diligence they perform as part of their decision.

The credit, debt and repayment habits of the principals are likely to be mirrored in the business. This pattern is particularly true in the case of SMEs and sole proprietors and why all principals must obtain their free credit report regularly.

 

Your free credit report from South Africa credit bureau Compuscan can impact your business’s ability to get a loan.

 

Personal free credit reports from South African credit bureaus

An alarming percentage of South Africans have never checked their free credit report, and an even more significant portion are entirely unaware that they even have a personal credit report.

A credit bureau calculates your credit score and generates your credit report by looking at your credit and repayment history. It takes into account all credit card accounts, home loans, vehicle finance, service accounts and businesses in your name.

Any adverse information is listed and can affect your report negatively.

When you apply for new credit, an enquiry is made into your credit report. Hard enquiries are listed on your report; having too many enquiries in a short period could affect your credit score negatively.

Your personal credit score is calculated from your credit report information and ranges from less than 618 to more than 669.  You want your score to be as high as possible. As your score increases, your potential risk decreases and your customer appeal to lenders grow.

Scores are broken up into categories to indicate risk profile as follows:

  • <618: Poor or Very High Risk
  • 618 – 633: Below Average or High Risk
  • 634 – 649: Average or Average Risk
  • 650 – 669: Good or Low Risk
  • >669: Great or Minimum Risk

When you pose a low risk to lenders, you have better bargaining power when negotiating your loan repayment terms and interest rates. In comparison, it can be tough to obtain a loan, much less negotiate good terms, when you have a low credit score.

You need to monitor your free credit report regularly to ensure that all information is correct and to identify areas you can work on to improve your credit score.

Your free credit report is available, once a year, from any credit bureau in South Africa.

You can, however, get unlimited access to your full free credit report and score with Compuscan at any time of the year by visiting www.mycreditcheck.co.za.

 

What you should be looking for on your free credit report

Once you have your free credit report, you should be checking and evaluating that the following information is correct and up to date:

  • Personal information such as contact numbers and addresses
  • Principal information.
  • Any relevant property ownership details.
  • All negative and adverse information, including arrears, judgments, skipped payments and court orders.
  • Any incorrect or outdated data should be disputed and rectified to improve your free credit report.

Remember to check your free credit report across all bureaus as information at one bureau could differ from the next. Additionally, information disputed at one credit bureau will not automatically be changed at another.

The status of your personal credit report can affect the terms and conditions of your business’ loan application, which is why you must monitor it closely.

You can improve your credit score by:

  • Paying all credit accounts on time
  • Paying off more debt to reduce your debt balance
  • Relying less on revolving credit
  • Avoiding missed payments and any judgments at all cost

You will have to show a consistent improvement in your bad credit habits before your credit score will start to improve.

There are different retention periods for information on your free credit report and the National Credit Act requires this information to stay on your report for a certain amount of time.

The time frame depends on the information. Dispute information will stay on your profile for six years, enquiries for one year and your payment profile for five years. These are just a few examples of the information subject to retention periods on your free credit report.

Your personal free credit report is particularly important when applying for a commercial credit loan. The details in your free credit report give creditors some insight into the behaviour of the individuals who will be managing and repaying their loan.

 

Commercial credit facilities

Commercial credit facilities can be a desirable lending option for new businesses. They can be used to lend large sums of money to cover start-up costs, and no collateral is needed to apply for the loan. They often have low-interest rates and flexible payback periods of up to 10 years. They allow owners to keep full possession of the business.

Obtaining a commercial credit loan is, however, not as easy without a proven strong commercial credit report.

First-time business owners may struggle to qualify for a commercial credit loan as a result of not having been able to build up a solid business credit report yet. In this case, the creditor will require the company principal to supply all personal financial information, including a personal credit report, obtained from South African credit bureaus.

Any problems with your credit report can affect your business’ eligibility to qualify for a commercial credit loan. This is why it is integral for principals to check their free credit reports regularly.

 

Company Ownership

Creditors will be looking at both your commercial and personal credit reports, but it is essential to choose the right structure for your new business. The correct structure will ensure that you are not personally responsible for any debts that your business cannot pay.

You have the option of registering your company as a private company, partnership, sole proprietorship, or business trust.

All of the above entities have particular pros and cons regarding tax, finance and continuity. However, in order the ensure that your personal assets are separate from your business risks, you will have to register a private company or trust.

Pros Cons
Private company Offers continuity after death.

Your personal assets are secure if the company becomes insolvent.

High Administration costs involved in running your business.
Partnership Your business will be taxed according to partners individual tax scales.

The personal assets of owners are at risk if the company should become insolvent.

Sole proprietorship Cost-effective option to run your business.

 

The company will cease to exist if the owner dies.

The personal assets of owners are at risk if the business should become insolvent.

Business Trust Your personal assets are secure if the company becomes insolvent. Taxed at a flat rate of 41%.

 

In conclusion

It is essential for business owners to monitor their free credit report regularly to either maintain or improve their personal credit score. Lenders will essentially look at you and your business as one entity and calculate the potential risk by scrutinising both your personal and commercial credit reports. Knowledge is power, and without knowing the details of your free credit report and your company’s commercial credit report, it is near impossible to improve them.

 

Resources

https://www.investopedia.com/terms/b/business-credit-score.asp

http://www.experian.com/small-business/commercial-credit-score.jsp

https://www.fundera.com/blog/business-credit-what-it-is-why-you-need-it-and-how-to-improve-it

https://www.mbopartners.com/blog/how-grow-small-business/what-is-business-credit-and-why-is-it-important-to-independent-professionals/

https://www.credibly.com/incredibly/business-capital-101/commercial-loans-for-business/

https://www.smesouthafrica.co.za/16819/What-to-consider-when-choosing-the-legal-structure-of-your-business/

http://www.cipc.co.za/files/2413/9452/7679/CompaniesAct71_2008.pdf

https://www.nerdwallet.com/blog/small-business/business-credit-score-basics/

https://www.thebalancesmb.com/the-importance-of-credit-reports-in-business-4038609

https://blog.mycreditcheck.co.za/a-quick-overview-of-what-is-on-your-credit-report-2019-07-10/

https://mycreditstatus.co.za/articles/credit-score-ranges-explained.php

https://businesstech.co.za/news/finance/227249/how-to-calculate-you-credit-score-and-how-to-improve-it/

https://blog.mycreditcheck.co.za/retention-periods-2016-04-21/

Recommended Articles

The importance of your free credit report as a business owner­­

If you are planning on applying for a business loan, it is crucial that you, as the principal of that […]

Read more Right red read more arrow
Close popup icon

Please enter your email address below to download more information

If you have not found what you are looking for, please visit our global website.
Close button