FICO SBSS Business Score
Do you know FICO® small business scores are being widely used today?
I’m guessing that you just did a double take when you saw that your business has a FICO® score. Although you’re probably no stranger to your own personal FICO® Scores, did you know that business scores issued by FICO® are nothing new?
Hundreds of financial institutions use these scores when making small business credit decisions. Since 2003, the Small Business Administration (SBA) has used the Small Business Risk Portfolio Score in its 7(a) and 504 loans programs. It’s also used the FICO® SBSS score since 2007 for small business borrowers.
David Lightfoot, vice president of product management at FICO®, says “It gives small business credit grantors the strongest predictor of credit risk relative to other small business scores, enabling them to pursue profitable growth strategies, adapt quickly to changing market conditions and make more competitive offers to small business borrowers.”
So how does it work?
Let’s break down the two kinds business credit scores that FICO® offers in detail.
First, there’s the FICO® Small Business Scoring Service℠ solution (SBSS). This origination score was launched in 1993 and was designed to evaluate the repayment risk of small businesses. Financial institutions use this score as part of their underwriting process. It helps them approve or deny a credit application as well as determine the credit limits and terms.
(click below to review)
The second kind of score is the Small Business Risk Portfolio Score (SBRPS). This score is used by lenders to check the account performance of a small business for future risk. Basically, lenders want to know ahead of time if a small business may experience problems paying back its existing loan, lease or credit card.
So what makes up these scores?
The small business scores fall within a range of 0-300. The higher the score the better it is for you as a small business owner because it means your company is more likely to repay a loan as agreed.
The score considers two types of information, or a blend of both.
Information about the Business
This info may include:
- Details about the company from the loan application
- Details in the financial statements provided by the business owner
- Data in the company’s business credit reports
- Key factors in the business repository report (report is prepared by a member-owned association that archives data from member banks)
- How the business pays its other financial obligations
Information about the Business Principal(s)
The principal is usually the business owner, co-owner or partner. This data includes:
- Details about the business principal from the loan application
- Data from financial statements that the business principal has provided
- Key factors in the consumer credit reports of the business principal, such as the payment history and depth of credit experiences as well as recent requests for credit
Now it’s important to point out that even though some businesses have less business history than others, FICO®’s scoring formulas adjust to different levels of data. And since no two borrowers are alike, FICO® has developed different scoring formulas for different segments of the small business industry such as startups.
By the way, did you catch that FICO® uses business and personal credit reports as part of the data used to generate your FICO® business credit score? That’s just another reason why it’s so important to also maximize your personal credit rating.
On a final note, a new version of the score, the FICO® Small Business Scoring Service℠ (SBSS℠) solution version 7.0, was released back in 2012 which offers an even greater scope of risk assessment. FICO® SBSS℠ 7.0 is being offered to small business credit grantors through FICO®’s LiquidCredit service, a cloud-based, single or multi-lender, automated origination platform.
This version includes data from Equifax commercial and consumer data and through Equifax’s relationship with the Small Business Financial Exchange, Inc., SBFE Data.
As you can see building strong business credit reports with all three major business credit reporting agencies is one of the key strategies to maximizing your company’s business credit ratings and financing potential.
Until next time.
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About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in ‘Fox Small Business’,’American Express Small Business’, ‘Business Week’, ‘The Washington Post’, ‘The New York Times’, ‘The San Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’.