We often interview small business owners who have received an SBA loan through our banking partners to learn about their entrepreneurial journey and keys to success.
Many offer this tip for others seeking small business funding: “Pay attention to your business credit score!”
As a consumer, you probably know that your personal credit score is important when shopping for a home mortgage, buying a car or applying for a credit card. As a business owner, your personal credit scores don’t tell the whole story of your business. The other score you need to be on top of is your business credit score, also known as the FICO SBSS score.
Why is the FICO SBSS Score Important?
When applying for an SBA loan through SmartBiz bank partners, your FICO SBSS score will be considered. FICO stands for the Fair Isaac Corporation, the largest and best known of several companies that calculate credit scores. SBSS stands for the Small Business Scoring Service.
This score is one factor that helps lenders determine how likely your business is to make timely loan payments and ultimately pay back the loan in full.
How is the FICO SBSS Score Calculated?
In short, your FICO SBSS score is calculated by reviewing personal and business credit history. Other business financial information also comes into play like the age of your business, number of employees along with financial data, like revenue and assets.
The SBSS score ranges from 0-300 with the higher your score, the better.
Strengthen Your FICO SBSS Score
If you’ve determined that your score needs to be higher to qualify for an SBA loan, there are steps you can take to raise your numbers. Review the items below to get started.
- Establish Business Credit
To help build your FICO SBSS score and give lenders a snapshot of your business creditworthiness, you need to establish a strong business credit profile. The first step is to apply for a D-U-N-S number through Dun & Bradstreet. To learn how to establish and why this number is important, visit the SmartBiz Loans Small Business Blog: Why Does Your Business Need a DUNS Number.
- Work with Vendors
Next, contact vendors that you’ve worked with and ask them to report your positive history of payments to the business credit bureaus. The SBA has an article here that explores suppliers and how they affect your overall credit report.
- Open a Business Checking Account
If you don’t already have a business checking account, open one ASAP. In addition to helping establish business credit, you’ll be separating your finances, making bookkeeping and accounting much easier. NerdWallet has an article to help entrepreneurs find a free business checking account.
- Apply for a Business Credit Card
Finally, apply for a business credit card, to be used for business purposes only. Check out this article from Investopedia for tips on how to use a business credit card responsibly: How to Use Small Business Credit Cards.
- Watch Outstanding Debt
Outstanding debt has a big impact on your SBSS Score. Fit Small Business analyst and writer Priyanka Prakash offers her expert suggestions. “Focus on first paying off high-interest-rate debt, such as student loans and credit card debt. Then, tackle other debt such as mortgage and auto loans. Going forward, try to pay your credit card bills in full each month so you don’t have carry over balances.”
- Check Your Scores
The Wall Street Journal writes, “For small-business owners, the consequences of a bad credit report can be dire.” A 2013 Wall Street Journal / Vistage International study, reported that 1 in 4 business owners found errors on their business credit report. Business credit monitoring is a good strategy to stay on top of your numbers and see what’s revealed to lenders.
Your FICO SBSS score is also one of seven key criteria used to determine your personal Loan Ready Score™, a transparent way to see how lenders look at you and your business. The Loan Ready Score wraps seven key areas banks use to evaluate a business into one simple score and your FICO SBSS is one of those seven key criteria.
To learn more about the seven criteria and increase your likelihood of approval when applying for low-cost funding, sign up for our new no-cost online educational tool, SmartBiz Advisor. * This tool helps you learn how banks typically evaluate your business and recommends ways to increase your likelihood of approval when applying for the low-cost SBA and bank funding you deserve. Just like a CFO in a large business, SmartBiz Advisor can help you learn how to build your lending profile by educating you about the factors banks consider.
Not sure if you qualify for an SBA loan? Try the new SmartBiz Advisor™ online, educational tool to learn about how you can get your business SBA or bank loan ready before you apply – no cost involved. You can assess key criteria banks consider and where your business stands on each. Learn more about SmartBiz Advisor here.
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.