Solve the Colossal FICO SBSS Mystery

Don’t you just love a good mystery?  The thrill of the clue hunt, the rush of the “ah-ha” moment, all of these are what makes a mystery lover tick.  When it comes to business financing however, most business owners aren’t really looking for a mystery. Cut and dried, black and white, and guaranteed are all terms we prefer when it comes to anything related to finances.  There is a long-time mystery in the world of business financing, however. Well, it is a mystery to the borrower anyway. Lenders have been aware of the secret for quite some time, but they aren’t sharing. What mystery you ask? It’s the mystery of the FICO SBSS.

There are many factors to consider when it comes to small business financing. You need your credit in order, you have to have complete financial statements, and sometimes you have to have some sort of security.

Then there is the matter of what type of financing you will go for. Do you need a working capital loan, a startup loan, or an equipment loan? Maybe you need to apply for a small business line of credit. Whatever the case may be, there will almost always be a credit check.

The business credit score is what often causes issues. Sometimes the business credit score is bad, but just as often it is nonexistent. No credit score is pretty much the same as a bad credit score. That isn’t the end of the story for most borrowers however.  This is why the FICO SBSS has become so popular.  

What is the FICO SBSS?

The FICO SBSS is the business version of your personal FICO credit score. It was becoming increasingly more common for lenders to use this score, rather than the Experian or even the D&B Paydex business credit score. Officially, all those letters stand for FICO Liquid Credit Small Business Scoring Service.

Unlike your personal FICO, the SBSS reports on a scale of 0 to 300. Of course, the higher the better, but most lenders require a score of at least 160

What Factors Make Up Your FICO SBSS?

This is a huge difference from other business credit scoring models. The SBSS uses your business credit score, personal credit score, and other financial information such as business assets and revenue. It is a total global financial picture rolled into one score.

How is it the FICO SBSS Calculated?

That’s the mystery. There seems to be a secret formula that no one can get their hands on. The score itself isn’t readily accessible either. This means you can go into a lender totally blind as to what your FICO SBSS credit score may be. This is different from other business credit score agencies. With the other credit agencies, you can actually get a copy of your credit report and know where you stand.

This is not so with the FICO SBSS. Here’s the real secret why. It can be different from lender to lender. Crazy right? It really is. This is how it works.

1. You turn in your application and all necessary financial documentation to the lender.
2. The lender processes this information and sends it to FICO with a request for your SBSS score.
   1. This is the real mystery. The lender can weight certain factors that make up your SBSS score. Your score can vary depending on how a lender weights each factor. For example, a lender can put more weight on your personal credit score or your business credit. It is their choice. This means your FICO SBSS can differ from lender to lender!
3. FICO then searches business credit information from business credit agencies including D&B, Experian, and Equifax. If they cannot pull enough scoring information from one, they move on to the next. If there is not enough information from any of them, then it uses personal credit and business financials only.
4. Using the lender’s weighting preferences, personal credit, business credit, and business financial data combine to create the FICO SBSS.

5. You get either approval or denial based on your score.

Who Uses the FICO SBSS? 

Most lenders use this credit score these days. It is more comprehensive and complete than the other scoring models. This is because it considers more than past payment information from the business.

Lenders know that there is more to a story than that. The FICO SBSS does the work of piecing together the whole picture for them. This isn’t always a bad thing, unless you are counting on your bad personal credit not being an issue when applying for a business loan. In fact, it can actually help you if you have no business credit. Other than the fact that the highest score possible with no business credit is 140. That is far below the 160 most lenders require.

For now, you need to know that many lenders use this score, and the number is growing. In addition, the Small Business Administration uses it as a pre-screener for its popular 7 (a) loans. The SBA does not itself lend money, but rather it backs certain loans through select lenders. It sets a minimum SBSS score of 140 to be eligible for a 7(a) loan.

That means if you apply for this type of loan, you must have a minimum SBSS of 140 before you are even eligible to apply. It is possible to get this type of loan with a score above 140 but lower than the typically required 160. The backing of the SBA reduces the lender’s risk.

Solve the Mystery: Look for the Clues

The mystery of the FICO SBSS has many layers. You can’t solve the mystery of exactly how they calculate it. You cannot know exactly what your score is at any given time. These are mysteries that will remain unsolved. The main reason for this is the flexibility that the lender has in how it weighs the calculating factors.

You can, however, use a few clues to help ensure you have the best FICO SBSS score possible.

Clue #1: Personal Credit

This clue is the first one you should focus on because it affects so many areas, and it is relatively easy to deal with. You can check it for free at any time through multiple credit monitoring sites that are readily available.

Once you know your personal credit score and have a copy of your report, you can get busy improving it. Report any errors to the credit agency in writing. Pay bills on time. If you are lacking in the personal credit department, it is easy to get a credit card, even if it is low limit and high interest. Put just enough on it that you make regular, on time payments and you can increase your personal score fairly quickly.

Clue #2: Business Credit

This one is a little more difficult to manage, only because most business owners do not truly understand it. Before you can have business credit, you have to first establish your business as an entity apart from yourself. There are a few steps you need to take to make this happen:

• Incorporate your business, or at least begin operating under a DBA.

• Get your business its own phone and fax numbers and list them in all the directories.

• Open a business banking account under the business name. Be sure to run all financial transactions for the business through that account.

• Get an EIN and a D-U-N-S number.

After you do this, you can get busy building and monitoring your business credit. Start by working with starter vendors that will report payments to the credit agencies. You can also use a business credit card to get some positive payment information recorded.

Clue #3: Business Information

You know where your business stands. If you are on solid financial ground, that is only going to help your SBSS. Be sure to have complete financials available at all times. This is the information that the FICO SBSS model will use for this piece of your credit score. It is best to have a professional accountant handle this part

Put it All Together

Once you know what the clues are, you can use them to get an idea of what your credit score might look like. Due to the flexibility that lenders have in weighting factors, you could never know what your score will be for sure. You can know if you need to work on one piece or the other before you apply however.

By the same token, don’t let the fact that one of these clues doesn’t look so great detour you from applying. You never know how they will weight something. If you have terrible personal credit but awesome business credit, you may still have a chance.

The same principle applies when it comes to denial by a lender. Don’t be afraid to try another, as they may come back with a totally different score.

Note that lenders are not obligated to disclose your score or their weighting policies to you. There is a lot you may never know. Consider these unsolved mysteries.

Put On Your Detective Hat

It’s true, you can never truly know what your FICO SBSS is. For one thing, it changes based on lender policies, and for another, you can’t access it like you can other credit agency scores. You can however, with a little detective work, get an idea of what it may look like. If one of the clues doesn’t look so great, you know where to focus your repair efforts

Today we want to know what you think about your FICO SBSS score.