Quick answer
To explain bad credit to a business lender, write a short note for each listing covering what happened, when, how it was resolved and what is different now, with evidence such as payment receipts or settlement letters. Be honest, factual and brief. Person-led lenders weigh context heavily, and a clear explanation with clean recent banking often matters more than the listing itself.
Key points
- Explain each listing: what, when, how resolved, what changed
- Attach evidence such as receipts and settlement letters
- Be honest and brief; avoid blaming others
- Clean recent banking supports your explanation
Why explanations work
An automated system sees a default and stops. A person sees a default and asks why. The answer changes everything. A default from a phone contract during a house move, paid soon after, tells a lender very little about whether a business will repay. A string of unpaid supplier debts in the last few months tells it a lot. Your explanation is how a lender tells the difference.
The four-part structure
For each listing, cover four points in a sentence or two each. What happened: the debt, the creditor and the circumstances. When it happened: the date or period. How it was resolved: paid, settled, under arrangement or disputed. What is different now: the change in your business or personal circumstances that makes it unlikely to recur.
An example of a strong explanation
“In 2023 a builder client went into liquidation owing us a substantial sum. We could not pay a supplier account on time and it was listed as a default. We paid it in full five months later; the settlement letter is attached. Since then we require deposits on all residential jobs and progress payments on commercial work, and our last twelve months of statements show no overdue accounts.”
That is clear, factual and evidence-backed.
What to leave out
Avoid long histories, emotional detail, blaming others at length or speculation. Do not minimise a serious problem or omit listings you hope will not be noticed; they will be, and omission damages trust far more than the listing itself. Keep the focus on facts and on what has changed.
Evidence that helps
Receipts, payment confirmations or settlement letters showing debts are paid. Correspondence showing a dispute was resolved or a judgement satisfied. A completion certificate for a debt agreement or evidence of discharge from bankruptcy. Recent bank statements showing clean conduct. If a listing is wrong, evidence of the correction request; see credit file errors.
Back it up with recent conduct
An explanation is most convincing when recent banking supports it. Three to six months without dishonours, overdrawn days or missed payments shows the problem is behind you. If your statements are still messy, consider waiting a little and cleaning them up first. Our guide to what lenders see in your bank statements explains what to focus on.
Choose a lender who will read it
Automated online lenders often never see explanations. Person-led lenders, specialist lenders and property-secured lenders do. Property security also reduces how much weight lenders put on credit history, because the equity carries much of the risk. Property-secured loans run between $20k and $5m, with no upfront valuation.
Explaining tax debt
Tax debt is not a credit listing in the usual sense, but lenders treat it seriously. Explain how it built up, what is being done (a plan, a loan to clear it, separated tax accounts) and confirm current BAS are lodged. See ATO tax debt loans.
An illustrative example
A café owner had two defaults and a judgement from a previous business that closed. Her first online application was declined automatically. She wrote three short explanations with settlement letters attached and applied to a specialist lender, which approved equipment finance after a phone conversation about her current trading.
Tell your story to a person
Use the 60-second form and include a line about your credit history. No credit check applies at this point, an expert looks it over, and your data stays with us. Honest answers help us match you first time. Get a fair hearing.
Frequently asked questions
Should I mention credit problems before the lender finds them?
Yes. Lenders will see them, and early disclosure builds trust.
How long should my explanation be?
A few sentences per listing is usually enough. Clarity matters more than length.
What if the problem was someone else's fault?
State the facts plainly, such as a customer collapsing owing you money, without blaming. Focus on how you dealt with it.
Do automated lenders read explanations?
Often not. Explanations matter most with person-led lenders.
What evidence helps most?
Proof of payment or settlement, correspondence showing a dispute was resolved, and recent clean bank statements.
Prefer to start now? Enquire here
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