As an individual, you have a personal credit score. Your small business also has a credit score, but until recently, this score was kept secret and inaccessible to business owners whose livelihoods it affected. Now for the first time, it’s possible for a small business owner to gain access to this score. Here’s what you need to know:
What is the SBA FICO SBSS Business Credit Rating?
FICO is the credit scoring company that works in conjunction with consumer credit bureaus Experian, TransUnion and Equifax to provide consumer credit scores.
Over the past ten years, FICO has also developed the Small Business Scoring System (SBSS) in order to provide lenders with the ability to evaluate the creditworthiness of small business loan applicants. Although this score, which ranges from of 0 to 300, has been in existence since 1993, it only became part of the federal Small Business Administration (SBA) in July 2014.
According to NerdWallet, the SBA hopes that this new scoring system will create a fairer and more streamlined method of evaluating lending risks, and will make it easier for small businesses to qualify for loans.
How is the Small Business Credit Score calculated?
FICO provides a good overview of this calculation on its site. It has an analytical platform that it calls its “Liquid credit decision engine,” which collects and integrates information about your business from a variety of sources.
It uses “application, financial, consumer bureau and business bureau data” to provide accurate information to credit grantors. The business bureau data also includes the last 12 months of Paydex scores, and any liens, judgments or other special financial conditions.
Creditera, one of our partners, notes that consumer data and responses are also factored into this business score.
How is the SBSS score different from a personal credit score?
Information from the three credit reporting bureaus on the business owner’s personal credit score is part of the data that FICO’s LiquidCredit Engine uses to generate the FICO SBSS score.
Additional data is gathered from the multiple sources mentioned above, and all types of information used for the score are listed on Dun & Bradstreet’s site. Other sources include business bureaus, Experian, Equifax Commercial and the balance sheets and financial statements generated by the business itself.
Newly available information
According to Fox Business, the Small Business Administration uses the SBSS score to evaluate any small business 7(a) loan application up to $350,000. Now Creditera has negotiated an agreement with FICO to allow business owners to gain access to their SBSS score.
Improved transparency for borrowers
As Creditera says on its site, “You should know what your score is before you need credit.” The availability of an SBSS score helps small businesses understand how they will appear to lenders and also helps them improve their credit standing.
If you’re a business owner, you can improve your company’s creditworthiness by always paying vendors and suppliers in a timely manner. It’s also important to respond to consumer complaints in a fully satisfactory manner, and even to take out and pay back a small business loan. Creditera points out that a business with no credit history at all can take a long time to move its SBSS score higher.
Fox Business points out that the expanded use of SBSS scores allows small business loan decisions to be standardized. This tool helps lenders compare each business loan applicant to other applicants with a similar business model so that objectivity and simplicity are both increased.
WebEquity Solutions, powered by FICO, offers the platform through which lenders can make use of this new score. Businesses can also receive feedback on the factors that determine scores and learn how to make improvements on this platform.
Overall, this new scoring tool creates a more efficient and level playing field in the area of small business financing.