Proposed credit changes good for small business

The days of having to fund a new business on the back of a pile of credit cards will soon be over. The Australia Law Reform Commission’s report into privacy laws has recommended the introduction of a more comprehensive credit reporting regime.

The days of having to fund a new business on the back of a pile of credit cards will soon be over. The Australia Law Reform Commission’s report into privacy laws has recommended the introduction of a more comprehensive credit reporting regime. This means a bank will have a lot more detail on a person’s credit history if the laws are passed in 12 to 18 months.

At present Australia is one of only a few countries in the world to restrict data to negative information. This means a bank does not know how many credit cards or personal loans with different institutions a person might hold. They only know “negative information” such as previous defaults.

Under a positive reporting system, which is likely to be introduced in a little over a year, there would be more items included in the personal information given to financial institutions.

This includes the type of account opened, the date it was opened, the credit limit and the date it was closed. One recommendation has been rejected. The commission did not include information about the individual’s repayment history being included.

While consumer advocates view this as an invasion of privacy, credit agencies like Dun & Bradstreet have welcomed the move. D&B chief executive Christine Christian says the big winners will be small and medium business. “Businesses have no ability to build a positive record of responsible borrowing over time,” she says.

Christian says that although the credit agency would like a person’s repayment history to be included, it was too much to expect at one time. “It was too much to expect them to go to the model operating in the UK and US at one time.”

She says once implemented, banks will know if you have other facilities when assessing an application. “If you have 10 cards maxed out at present the bank won’t know in the current environment. This will provide an opportunity for small businesses to negotiate better commercial terms with their banker because they’ll have the history. Credit is central to the operations of small business owners and it is vitally important we have a better reporting system.”

She says that in every country where positive reporting has been introduced, there has been increased lending to SMEs. “Many micro businesses find they can get a line of credit and can negotiate good commercial terms. In this country you should not be paying credit card interest in order to keep your business functioning.”

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