Do you ever feel banks and business lenders are speaking another language? You’re not alone. The world of small business loans is riddled with complex terminology and confusing acronyms, obscuring the facts that borrowers really need to know to successfully find funding.
Even more frustrating? Some of these confusing acronyms are a critical part of a lender’s decision on whether or not to approve you for a loan! One such confusing-yet-critical acronym is called FICO SBSS.
If you haven’t heard of the FICO SBSS score, you’re not alone. It launched in 1993, but it only started to gain traction in 2014. But now that more banks and alternative lenders have been using it in their analyses of your loan application, it’s be good to gain an understanding of what it is, how it works, and how it could affect you.
What is FICO SBSS?
First things first, let’s get you caught up to speed on what FICO SBSS actually is. You may be familiar with FICO (Fair Isaac Corporation). This is the company responsible for your personal credit score—one of the most important components of your loan application.
What you may not be so familiar with is SBSS, which stands for Small Business Scoring Service. Basically, this SBSS takes what FICO does for your personal finances and applies it to your business.
In other words, it helps lenders rate both your personal and business credit worthiness together with one number.
Putting the two together, the FICO SBSS gives lenders a full, combined picture of both your personal creditworthiness as the business owner, and your business’s credit as a separate entity. By combining all pieces of the financial analysis into one score, FICO SBSS allows lenders to process applications and underwrite loans faster and more accurately.
So as it turns out, your FICO SBSS can be beneficial to both you and the lender—as long as your score is strong.
How the FICO SBSS Works
As we mentioned above, your FICO SBSS is a combination of both your business and personal credit scores. This, of course, means that your score is based upon the financial history from both your personal life and your business.
Unlike the scoring scale you’re probably familiar with, your FICO SBSS ranges from 0 to 300, with 300 being the best possible score. And although the scale is different, the same rationalization stands—the better your score, the better your chances of loan approval.
Why is Your FICO SBSS Important?
As it turns out, the importance of this little-known score has grown drastically with lenders in the last couple of years. The U.S. Small Business Administration uses it, and so do over 7,500 lenders nationwide. Some alternative lenders even consider it the primary determining factor that they use when underwriting business loans.
Think of it this way. You already knew that both your personal credit score and your business credit score are critical to your ability to qualify for business loans, as well as the interest rate you’ll get. As a combination of those two factors—and potentially with a few other key metrics about your business added in—well, you can probably imagine that the weight of the FICO SBSS is quite significant to your chances for loan approval.
Calculating Your Score
It’s the million dollar question: “How is the FICO SBSS calculated?”
Unfortunately, in order to keep small business owners from tricking the system, FICO keeps the exact recipe for that secret sauce under lock and key.
While we don’t know exactly how FICO formulates its SBSS scores, it’s a safe bet that the same best practices that impact your your personal and business credit scores—as well as the general financial health of your business—will also help to improve your FICO SBSS.
To be on the safe side and make your FICO SBSS the best it can be, make sure you’re paying attention to these important factors:
#1. Personal & Business Credit History
FICO will take into account your personal credit reports and scores from all three major reporting bureaus—Experian, Equifax, and TransUnion—as well as your business credit report from an agency like Dun & Bradstreet. Remember that different agencies use different methods for pulling your credit history, so check your reports with all major credit bureaus regularly to avoid any discrepancies or erroneous reports.
#2. Liens & Judgements
Are there any liens or judgements against your business as a result of unpaid debt? Having one of these is the fastest way to tank your FICO SBSS score—so if you know of any, take steps to address it immediately.
#3. Time in Business
The longer you’ve been in business, the better ranking you’re likely to receive in this category. Unfortunately in terms of improving your score in this category, there truly is nothing you can do but wait. However, it may be comforting to know that your time in business ranking can only get better as time goes on!
While there isn’t much you can do to change some of these components, like your time in business; there are things you can do to improve other components that will factor into your score.
If you’re concerned at all about a low FICO SBSS score, make sure that you’re regularly checking your credit report for errors, paying down your debts, and paying your bills on time. There are also steps you can take to increase your cash flow and get rid of liens.
But most of all, don’t panic! Focus on running a strong, financially healthy business, and trust that if you’re doing that well, your FICO SBSS score will reflect the hard work you have done.
Images: ” Credit Score sketch on notebook / Shutterstock.com“
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