If you’re applying for a small business loan, like the SBA 7(a) loan, there are two types of credit scores that can make a big difference: your personal credit score and your small business credit score. While your personal credit score is currently the more important of the two, small business credit scores are becoming an increasingly important part of the loan approval process. The most commonly used small business credit score is the FICO SBSS (Small Business Scoring System) score, which ranks businesses by estimating the likelihood that they’ll make their loan payments on time.
How Does FICO SBSS Work?
Unlike FICO personal credit scores, which can go from 300 to 850 (in theory), FICO SBSS scores go from 0-300. So, instead of 300 being the worst score you could possibly get, it’s actually the best. SBSS scores are calculated by looking at both a business’s credit and the business owner’s personal credit, which means that if you have poor personal credit, it could affect your small business credit as well.
How FICO SBSS Scores Are Calculated
SBSS scores are calculated by using a variety of factors, including:
Personal/business credit score
A business’s assets and liabilities
The business’s cash flow/revenue
How long a company has been in business
Liens and judgements against the business
However, it’s difficult to know which of these factors that FICO weighs the most heavily when calculating a business’s SBSS score. Plus, they could be looking at other factors as well, such as background checks or a business’s online history, but it’s impossible to know for sure, since FICO’s specific process is proprietary. Fortunately for many small business owners, however, size isn’t a factor. For example, a 3-person company won’t face any penalty for being small, and a 500+ employee firm won’t gain any specific scoring advantage by being large.
How to Boost Your FICO SBSS Score
There are a few ways to bring up your SBSS score, including:
Improving your personal credit, by:
Paying off credit card balances
Making re-payment plans with lenders for any overdue debt
Make all bill payments on time, including rent, utilities, student loans, and other expenses
Separating your business and personal finances, by:
Getting separate credit cards for business and personal use
Avoiding paying any personal bills or expenses with business bank accounts or credit cards
Making sure all business bills are paid on time, and in full
And, if your business does not yet have a significant credit history, you may want to:
Apply for a D-U-N-S number through Dun & Bradstreet (a large business intelligence and credit reporting agency)
Ask any vendors you’ve worked with to send a positive payment report to the business credit bureaus
Open a business credit card and use it responsibility by not going too close to your credit limit and making payments on time
FICO SBSS Scores and the SBA 7(a) Loan
In 2014, the Small Business Administration began using FICO SBSS scores as part of the pre-screening process for businesses applying for SBA 7(a) loans above $350,000. The minimum FICO SBSS score for small businesses is 140, but in most cases, the SBA won’t approve loan applications for business unless their SBSS score is 160 or more. Many major lenders prefer even higher scores, with a 180 being the ideal minimum in most cases.