Credit agencies ‘at odds’ when rating small firms

The reliability of small business credit scores is being questioned after leading agencies assessed the very same business only to emerge with vastly different ratings.

A reported study of private firms’ credit reports found an average variation rate of 150 per cent in the limits which three of the highest profile agencies recommended.

Although discrepancies between the agencies’ ratings were expected, because different agencies base their scores on different criteria, their sheer size is causing concern.

Speaking to the Sunday newspaper that obtained the study, a business support group said the “huge variations” between the agencies’ ratings could, in the worst case scenario, force a firm to fold. 

Phil McCabe, of the Forum of Private Business, said such differences had become the “untold story” of the ongoing problems surrounding lending for smaller firms.

They could hurt an entrepreneur’s ability to gain credit from a supplier; cause problems for the supplier’s own reputation and make it more difficult if either party wanted to raise finance.

“Companies will simply refuse to trade with firms based on flawed credit reports,” he warned. “[And] some small businesses could be persuaded to trade with high-risk organisations based on an overly generous credit score.”

Agencies also emerged as unable to agree on whether a small company’s credit risk is improving or deteriorating, the study by accountancy firm Shelley Stock Hutter shows, resulting in an either downgrade or an upgrade to the company’s credit limit depending on the agency.

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