A clearout default on your credit file: can you still get a business loan?

Yes, you can still borrow, though fewer lenders will look at it. A clearout is a default listed because the credit provider says it couldn’t contact you. It stays on your credit report for seven years, two longer than an ordinary default, and lenders read it as a sign you might have gone missing on a debt. Check it’s valid, deal with it, and explain it.

Most people with a clearout didn’t disappear on purpose. They moved, changed phone numbers, or let an old account slide while life got busy. This guide explains what a clearout is, why it hits harder than a normal default, and the practical steps that get a business loan back on the table.

What exactly is a clearout?

On a credit report, a default is a record that you didn’t pay an amount you owed after the provider chased it. Moneysmart explains that a default can be reported when the amount is $150 or more, at least 60 days have passed since it was due, and the provider has asked you to pay. A clearout is the version where the provider couldn’t reach you at all.

Moneysmart sets out the difference in how long they last:

Type of listing	How long it stays on your report
Repayment history (missed payments)	Two years
Default	Five years
Clearout	Seven years

Paying a clearout doesn’t shorten that period. It stays listed, marked as paid.

Why do lenders treat a clearout more harshly?

A normal default says: “This person fell behind and didn’t pay.” A clearout says: “This person fell behind and we couldn’t find them.”

For a lender, the second is more worrying. Their whole model depends on being able to contact you if something goes wrong. A clearout raises the question of whether you’d answer the phone if repayments slipped on their loan.

That’s why the explanation matters so much more with a clearout. The lender isn’t just asking what went wrong. They’re asking whether you’re reachable and responsible now.

Compare two ways of explaining the same listing. “I didn’t know about it” leaves the lender with the same doubt they started with. “I moved from Newcastle to the Gold Coast in 2021, the old provider wrote to my previous address, I found the listing when I checked my report this year, paid it within a week and have the letter here” answers every question they were about to ask. The facts are identical. The second version shows someone who deals with things once they know about them, which is exactly what a lender needs to believe.

Could the clearout be invalid?

Possibly, and it’s worth checking before you do anything else.

The OAIC explains the rules a provider must follow before listing a default. Notices must go to your last known address, or by email if that’s how the provider usually writes to you. A second notice must follow at least 30 days after the first, saying the provider intends to list the default, and at least 14 days must pass before it’s listed.

Crucially, the OAIC says that if notices went to an old address, the listing may be invalid, unless you failed to update your contact details. So:

• If you told the provider you’d moved and they still wrote to the old address, you may have grounds to have it corrected.
• If you never told them, the provider has probably met its obligations, and the listing likely stands.

Moneysmart notes you can ask the credit reporting agency to correct wrong or out-of-date information for free. Be wary of anyone charging to “remove” a listing; only incorrect information can be removed, and you can request that yourself.

What should you do before applying for a business loan?

Work through these in order.

1. Get your credit reports. Moneysmart says you can get a free copy from the credit reporting agencies every three months. Different agencies may hold different information, so check more than one.
2. Identify the debt. Who listed it, for how much, and who owns it now. Clearouts are often sold to collection agencies.
3. Check the listing’s validity. Look at the address the notices went to and whether you’d updated it.
4. Pay or settle it if it stands. Get a written payout figure, pay traceably, and ask for a paid-in-full or settlement letter.
5. Ask for the listing to be updated to show it’s paid, then check your report a few weeks later.
6. Make sure you’re findable. Current address, mobile and email on every account. It sounds trivial, but it’s the root cause of most clearouts.
7. Write your explanation. Three or four sentences: what the debt was, why you didn’t receive the notices, when you found out, and what you did.

If you’d rather talk it through before tackling all of that, a quick enquiry is a good start. A real person reads it and calls.

Which business loans are realistic with a clearout?

The more a loan relies on your credit score, the harder a clearout makes it. The more it relies on something else, such as property or the business’s own trading, the less it matters.

Unsecured and cash-flow lending. Typically $5k to $500k for trading businesses, sized on turnover and bank statements. Some unsecured lenders will look past a paid clearout with strong statements; an unpaid recent one is a harder sell.

Property-secured lending. Property-secured business loans range from $20k to $5m through first mortgages, second mortgages and caveats. These lenders focus on the security and the exit, which is why our bad credit business loans page describes property as the single biggest factor for impaired files. If the property is your home, our home equity business loans page explains how that works.

Short-term caveat lending. Where speed matters and there’s equity, a caveat loan can be an option. These are short-term by design and need a clear exit.

Whatever the route, lenders will still want the basics. The government’s guide to applying for a business loan lists proof of identity, financial reports and personal financial information among the usual documents.

What does this look like in practice?

Illustrative example only. A landscaper moved interstate six years ago to start his own business. An old personal loan from his previous city had a final balance of about $2k he didn’t realise was outstanding. The notices went to his old flat, and the debt was listed as a clearout.

He discovers it when a bank declines his application for $90k to buy a skid steer and trailer. He pulls his reports, finds the listing and checks the dates: he never notified the old lender of his move, so the listing is likely valid. He pays the collection agency, gets a settlement letter and asks for the listing to be updated.

He then approaches a specialist lender with his letter, a short explanation, twelve months of steady bank statements and equity in his home. The lender treats the clearout as an old administrative mess rather than a pattern, and the application proceeds with the home as security.

Clearout on your file? Let’s look at the business behind it

A clearout feels like a black mark that follows you around. But most lenders who understand impaired credit care far more about how the business is trading today, and whether you’ve dealt with the past, than about one old listing.

Starting takes roughly 60 seconds, and there’s no credit check when you first enquire. We don’t push your details out to a pile of lenders, so you won’t be fielding calls from people you’ve never heard of. A real person reads your situation, clearout and all, and calls you to talk through what’s realistic. Please complete the form accurately, including what’s on your file, so we can line up the right option first time.

Find out what you could qualify for →