Last week we saw a fast turnaround in a customer’s credit score that allowed them to secure the finance they needed.
Unfortunately, self employed business owners can struggle to get the same trajectory in their road to redemption.
Lenders can be less forgiving about past mistakes, even if your business is doing well and the blemish is small.
This week’s case study is a perfect example of what happens when a high-earning business owner hits a wall due to old defaults.
The good news is that there is always a Plan B to get the deal done.
Customer of the Week
A few months ago, a customer who runs a successful transport and logistics business came to us looking to finance a new ute. The purchase price was around $70,000.
He is a high earner with great cash flow, but his credit file had some problems.
There were three separate defaults listed for a combined paltry sum of just under $3,000 combined.
However, the presence of these defaults was a red flag for potential lenders.
At the time, the only finance option available to him was a very expensive, unsecured business cash loan.
The Gusto Action Plan (And The Customer's Hustle)
The costly loan for the full $70k was not a great option. So once again, we laid out the pathway to repairing the damage and told him to come back to us in a few months.
The customer took our advice and ran with it.
He went one step further and actively contested two of the three defaults with the original lenders and was successful in having these removed from his credit report (not an easy task!).
One Small Anchor Remained
When he returned to us, his credit file presented in a much more positive light. He only had one remaining default, and it was for a trivial amount: just $200.
You would think this would open the floodgates to cheap, prime commercial finance. It didn't.
Because he is a business owner, commercial lending policies can be notoriously strict on some items.
That single, tiny $200 default still locked him out of the top-tier lenders.
Despite his massive improvements, he was still stuck with the same expensive unsecured finance option we had looked at months prior.
Although, at a much better rate.
A Sizeable Deposit
In the three months between applications he had also saved a chunky deposit to put towards the purchase.
This de-risks the loan further in the eyes of the lender, while reducing the total amount he needed to borrow.
The Result
We proceeded with the smaller unsecured commercial loan to fill the gap between the savings and the purchase price.
While the interest rate was higher than a secured loan, the fact that he borrowed a much smaller amount meant his actual monthly repayments were manageable.
He got the ute his business needed without the big drain on his cash flow.
The Takeaway
Credit blemishes can have a disproportionate impact on your finance options when you are running a business, compared to a regular consumer loan.
However, commercial lines of credit are still open to you provided you can demonstrate strong banking conduct.
Do I Need a Deposit?
What if you don't have a deposit saved? Do you actually need one to get approved?
In most cases, the answer is no. You can get finance for 100% of the purchase.
But if you do have some cash then a deposit can help:
- Improve your approval odds.
- Lower your monthly repayments.
- Substantially reduce the total interest paid.
​Read the full article here​