The Fair Isaac Corporation’s Small Business Scoring Service (FICO SBSS) score has become an increasingly important factor in small business borrowing.
“SBSS” is not to be confused with the Department of Defense’s Space-Based Space Surveillance, a joint program between Boeing and the United States’ Department of Defense (DOD) designed to track space objects. Although learning about our country’s space assets and the space surveillance satellite SBSS program is exciting, it’s not the focus of our attention today.
Instead, we’re here to discuss FICO SBSS, which is relevant to small business owners looking to take out new lines of credit. In this article, we’ll detail what the FICO SBSS is, how it works, what factors go into a FICO SBSS score and more.
What is FICO?
To understand the FICO SBSS, it’s critical to understand what FICO is. FICO stands for Fair Isaac Corporation. It markets itself as “an analytics company that is helping businesses make better decisions that drive higher levels of growth, profitability and customer satisfaction.
You may have heard of FICO already when looking at your personal credit score. If you have ever borrowed money for personal reasons or for your business, you’ve come in contact with how vital this three-digit valuation of your creditworthiness — known as a FICO Score — can be.
However, lending isn’t something that’s limited to personal use. Banks and alternative lenders use it. Landlords use it. Homeowners and auto insurance dealers? They use it, too. That’s where the SBSS system comes into play.
What is FICO SBSS?
SBSS is a three-digit number that measures how well your small business has repaid past loans. SBSS stands for the Small Business Scoring Service, and in short, it does for small businesses what FICO’s personal credit scoring service does for individuals.
In other words, it’s a risk assessment of lending to your small business. Since it provides lenders with an efficient and systematized measurement of a credit recipient’s ability to pay, lenders can use it to process small business loan applications faster.
The SBSS is one of the three main small business credit scores. But, it’s never been the most popular because, up until now, it’s been challenging for owners to find and use it. There isn’t much information online about SBSS scores, and banks aren’t required to disclose when they use it.
Who uses the SBSS?
The SBSS is popular among lenders because it provides decisions that are not only more accurate but much faster as well. Lenders find that they can make decisions on lines of credit within a matter of hours, as opposed to a matter of days.
The U.S. Small Business Administration (SBA) uses SBSS to pre-screen for its 7(a) loans. These SBA loans are designed specifically for small businesses. By using the FICO SBSS, the SBA can quickly determine whether your company qualifies for one of these loans. SBA loans can be more attractive than conventional loans because the government guarantees them, and they typically have:
- Higher limits
- Longer repayment terms
- Lower interest rates
If you’re applying for a 7(a) loan greater than $350,000, the SBA is required to run your company’s FICO SBSS score. However, even if you’re applying for a lower amount, SBA may still run your score. Additionally, many banks will run your SBSS score to determine your creditworthiness if you apply for a loan with them.
In fact, the FICO SBSS is specifically for loans and lines of credit not exceeding $1 million. If you’re seeking credit for less than $1 million, there’s a good chance the lender will use your score when making a decision. There are more than 7,500 lenders that use the FICO SBSS system, including:
- U.S. Bank
- Santander Bank
- Huntington National Bank
Note that lenders may use the FICO SBSS as the first stage of the approval process. If you don’t make the cutoff, the lender prevents you from further filling out an application for credit. If you do pass the FICO SBSS, you can continue to fill out an in-depth form.
This could be the case when applying for loans or business credit cards. Let’s take a more in-depth look at how SBSS works.
How does the FICO SBSS work?
First and foremost, personal credit scores have a much broader range. For instance, personal FICO scores range from 300 to 850. The range for a FICO SBSS is much narrower, as the score ranges are only between 0 and 300. In both cases, the higher the score, the better.
The cut-off for an SBA loan is 140, meaning if your business is not at least above this number, you’ll automatically be disqualified from credit consideration. Although 140 is the cut-off for the SBA, many other lenders tend to use 160 as the cut-off. Anything in the mid-to-high 200s is considered a good score.
Another exciting component of the FICO SBSS is that it draws information from both your personal and your small business’s financials, instead of just one or the other. You can think of it as a sort of hybrid credit score, which makes it a more comprehensive assessment tool for small business lenders. FICO considers a wide variety of information when crafting your score.
What factors go into computing a FICO SBSS score?
One of the most significant factors of the FICO SBSS score is credit history. A strong business credit history will demonstrate on-time, accurate payments to suppliers, and vendors. Unfortunately, if you have a weak or nonexistent business credit history, it can take a while to boost your score.
In fact, it could take months or years to build a strong-enough credit history to boost your SBSS. That’s why you must stay on top of your payments, as a bad stretch in your payment history could have long-lasting implications for your small business financials.
FICO also looks at other things, like:
- The age of your business
- How many employees you have
- Your financial information, like cash flow, revenue, liens and judgments
All of this financial data is then processed through their modeling system, and the result is your FICO SBSS score. The lender is provided with your FICO SBSS score and your credit details.
Because the FICO SBSS applies to businesses of drastically different sizes, it naturally adjusts according to how much information it has access to. That’s a good thing because a very small business and a small-to-medium business can have equally good FICO SBSS scores, so there’s no advantage given based on the size of your company.
Although the system considers how many employees you have, it does so on a relative basis. Meaning, for instance, it may compare your cash flows to the size of your business.
Does this seem vague? That’s because it is. Banks and lenders can tell FICO what information they wish to consider the most when crafting SBSS scores, which could lead to you receiving different scores depending on where you apply. Lenders can choose to put more weight on certain factors. For example, lenders may want to consider your personal credit history more than your business history.
When doing so, FICO will consider the personal credit histories of owners. For example, if you’re in a general partnership, the individual histories of both owners will factor into the SBSS score.
Why do banks and lenders like FICO SBSS?
One of the biggest reasons why lenders like FICO SBSS is because, as we just discussed, they can determine which information is most important. Lenders can set specific parameters for their search. And, because FICO considers both personal and business scores, it provides a more comprehensive profile.
Furthermore, FICO bounces from one credit bureau to the other until it finds the information it needs. For instance, let’s say the lender wants to heavily weight the Experian Intelliscore, but it also values some information that the Intelliscore doesn’t contain. FICO will automatically go to the next business credit bureau, such as the D&B PAYDEX Score, until it finds the information the lender is considering.
So in this sense, it’s arguably the most comprehensive score possible for lenders when evaluating credit risk. Additionally, lenders aren’t required to tell applicants who fail why they did so. Business owners often find this frustrating, as they’re not sure what factors caused them to fail. That’s why business owners need to be aware of the FICO SBSS before the application process.
Why should you care about FICO SBSS?
Your small business’s score could affect whether you can get a loan or not. If you do get the loan, the SBSS can affect the credit limit and terms of that loan. In short — the higher your SBSS score, the better off your business will be. A low score can restrict your access to capital or cause you to have to pay an excessive amount in fees and interest rates.
As mentioned, If you’re considering applying for an SBA 7(a) loan, you’ll generally need a FICO SBSS score of at least 140. If you’re looking for loans from other lenders, you’ll likely need a rating even higher than that. Many other lenders have a minimum score of 160.
The FICO SBSS score is an essential factor in many lending decisions. Maintaining good credit personally and in your business can help you have more options if you decide it’s time to consider additional funding for your business.
If you’re concerned that your score isn’t high enough to qualify, you can make efforts to improve your credit scores before applying.
Final thoughts on the FICO SBSS
If you’re interested in applying for a small business loan, take a look at your credit history and SBSS score. Keep the cutoffs in mind when doing so. If you have a low rating, you should work to improve it before applying for your loan or line of credit.
Remember also that the FICO SBSS score factors both your personal and business credit histories. Even if you have a strong business history, you may need to work on improving things in your own life.
If you know that you’re not going to meet a lender’s cutoff, you should not waste your time applying for the loan. Instead, focus on improving your score until you know you’ll be accepted for the loan you’re looking for.
This strategy may slow growth in the short-term, but it’ll leave your company with much better financial health in the long run. Using trusted accounting software can give you a better look at your company’s finances.