Tag: World’s

SBSS Score and Fundability: When Two Worlds Collide

You already know your credit scores, both personal and business, affect fundability.  But did you know that there is one business credit score that uses not only both business and personal credit history, but other information as well.  It gives lenders a much broader picture when it comes to fundability. You need to understand how your SBSS score can affect the fundability of your business. 

How your SBSS Score Fits into Fundability

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 beyond that there are many other things that affect the fundability of your business.

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.  

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SBSS Score: What Is It? 

The FICO SBSS is the business version of your personal FICO credit score. It is becoming more common for lenders to use this score, rather than the Experian business credit score or even the D&B PAYDEX. It stands for FICO Liquid Credit Small Business Scoring Service.

Unlike your personal FICO, the SBSS reports on a scale of 0 to 300. The higher the score the better. But most lenders demand a score of at least 160. 

SBSS Score: How Is It Calculated 

The scoring model for this score is very different than other business credit scoring models. Honestly, it actually gives a better picture of overall fundability in some ways.  This is because it uses your business and personal credit scores.  Also, financial information like business assets and revenue come into play. The point of the SBSS sore is to give a picture of total fundability in one score. 

Business owners cannot access this score themselves. The formula for calculations is proprietary and well-guarded by FICO. They do not make the information public. When you go to a lender, you go in blind about what your score may be. In contrast, with the other credit agencies you can actually get a copy of your credit report and know where you stand. 

The reason this does not work the same way is surprising to many.  The truth is, you could have a different score from lender to lender.  This is because of how lenders request your score. 

SBSS Score: How Lenders Get Your Score

The process starts when you turn in your application.  It will include all the financial information the lender requires.  Then the lender will process the information and send it to FICO with a request for your SBSS score. At this point, the lender can ask for certain factors in the score to carry more weight than others.  For example, they can put more weight on your personal credit than your business credit.  They could choose to weigh annual revenue as more important than payment history. It is their choice. This is why your FICO business score could vary between lenders.

SBSS Score: What Does FICO Do with the Request? SBSS Reports and Scoring Credit Suite

First, they get the request from the lender. They then search business credit information from business CRAs. These include D&B, Experian, and Equifax.  If they cannot pull enough scoring information from one, they move onto the next. If there is not enough data from any of them, then it uses personal credit and business financials only. 

With the lender’s weighting preferences, personal credit, business credit, and business financial data, they calculate the score. The information is specific to that lender.

Who Uses the SBSS Score?  

These days, the SBSS score is becoming more and more popular among lenders that lend to businesses. 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 fundability than credit score alone. With SBSS, FICO 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 want 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.  

FICO SBSS and Overall Fundability 

While this score gives a more complete picture of overall fundability than other business credit scores, it still doesn’t necessarily tell the whole story.  Here is how each element of fundability comes into play for your SBSS score. 

Business Credit Reports

These are the credit reports, much like your consumer credit report, that detail the credit history of your business.  It is a tool to help lenders determine how credit worthy your business is.  

These come from a number of agencies, but the main three are Dun & Bradstreet, Experian, Equifax.  FICO searches business credit information from these agencies when compiling your score for SBSS. That means, you need to ensure your information with these companies is as complete and accurate as possible.  Business credit monitoring is essential. Another key point here is to ensure your business is set up to be fundable in the first place.  If not, there won’t be a lot for FICO to get from these agencies anyway.

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Other Business Data Agencies 

In addition to the business credit reporting agencies that directly calculate and issue credit reports, there are other business data agencies that affect those reports indirectly.  Two examples of this are LexisNexis and The Small Business Finance Exchange. These two agencies gather data from a variety of sources, including public records.  This means they could even have access to information relating to automobile accidents and liens. While you may not be able to access or change the data these agencies have on your business, you can ensure that any new information they receive is positive.  Enough positive information can help counteract any negative information from the past. 

Since these agencies indirectly affect reports that FICO uses when calculating your SBSS score, they make a difference. 

Identification Numbers 

In addition to the EIN, there are identifying numbers that go along with your business credit reports.  You need to be aware that these numbers exist.  Some of them are simply assigned by the agency, like the Experian BIN.  One, however, you have to apply to get. It is absolutely necessary that you do this. 

Dun & Bradstreet is the largest and most commonly used business credit reporting agency.  Every credit file in their database has a D-U-N-S number.  To get a D-U-N-S number, you have to apply for one through the D&B website. If you don’t have a score with D&B, you might as well not have a business credit score. As already mentioned, FICO uses D&B information as well as information from other business credit agencies.  

Business Credit History

Your credit history is the crux of what makes up your business credit score, and your business credit score is a big part of your score from FICO SBSS, though how much it matters depends on how the lender requests it be weighted.  

Your credit history consists of a number of things including: 

  • How many accounts are reporting payments?
  • How long have you had each account? 
  • What type of accounts are they?
  • How much credit are you using on each account versus how much is available?
  • Are you making your payments on these accounts consistently on-time?

The more accounts you have reporting on-time payments, the stronger your credit score will be. 

Business Information

On the surface, it seems obvious that all of your business information should be the same across the board everywhere you use it.  However, when you start changing things up like adding a business phone number and address or incorporating, you may find that some things slip through the cracks. 

This is a problem because a ton of loan applications are turned down each year due to fraud concerns simply because things do not match up.  Maybe your business licenses have your personal address but now you have a business address.  You have to change it. Perhaps some of your credit accounts have a slightly different name or a different phone number listed than what is on your loan application. Do your insurances all have the correct information?  Monitoring is key for this factor as well. 

This is one of those elements of fundability that lenders may use in conjunction with a credit score.  It doesn’t necessarily affect the score itself, but if can definitely affect whether or not you get approval.

Financial Statements

While the FICO formula is proprietary, many sources state that, if available, information from financial statements is used in the calculation of your SBSS score.  This encompasses a broad spectrum of things.  First, there is the obvious. Both your personal and business tax returns need to be in order.  Not only that, but you need to be paying your taxes, both business and personal.  

Regardless of whether they are used in the calculation of the score however, the information on these statements definitely affects your fundability. 

Bureaus

There are several other agencies that hold information related to your personal finances that you need to know about.  The data these bureaus hold affects fundability. 

Take  ChexSystems for example.  In the simplest terms, they keep up with bad check activity that affects your bank score.  If you have too many bad checks, you will not be able to open a bank account.  That will cause serious fundability issues. 

For this point, everything comes into play.  Have you ever been convicted of a crime? Do you have a bankruptcy or short sell on your record?  How about liens or UCC filings? All of this can and will play into the fundability of your business. 

While these factors are unlikely to figure into your FICO SBSS directly, they do, along with your credit score, affect fundability. 

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Personal Credit History

Your personal credit score from Experian, Equifax, and Transunion definitely directly affect your SBSS score. If there is a problem somewhere, get to work on it.  The number one way to get a strong personal credit score or improve a weak one is to make payments consistently on time. 

Also, make sure you monitor your personal credit regularly to ensure mistakes are corrected and that there are no fraudulent accounts being reported. 

The Application Process

The loan application process itself can affect fundability also.  First, consider the timing of the application.  Is there any part of overall fundability you need to work on before you apply? Next, ensure that your business name, business address, and ownership status are all verifiable.  Lenders will check this.  Lastly, make sure you choose the right lending product for your business and your needs. Do you need a traditional loan or a line of credit? Would a working capital loan or expansion loan work best for your needs?  If you are applying for a product that won’t serve your purpose, it doesn’t matter if you get it or not.

SBSS Score: It’s a Mystery

The fact is, you do not and cannot know what your score from FICO SBSS will be.  There are too many variables in play. What you can do though, is get a good overall idea of your fundability based on what you know about the factors that affect it.  Once you have this, you can be sure your score from FICO SBSS will reflect it accurately.  

The post SBSS Score and Fundability: When Two Worlds Collide appeared first on Credit Suite.

All the World’s a Stage: Meet Dun and Bradstreet and the Business Credit Characters

Everything you Need to Know about Dun and Bradstreet and the Other Characters in the Show

All the world’s a stage they say, and when it comes to your business, business credit is the star of the show.  It can make you laugh, cry, or carry you on wings that soar.  It can truly be the foundation on which your business is built, or it can be the very thing that tears it down.  Dun and Bradstreet has carried the title of lead player in a credit reporting agency role for years, but the supporting roles played by both Experian and Equifax bear mentioning as well.

Before we jump into the life and purpose of each, it can help to understand a little more about business credit. Why business credit?  What makes it so special?  Who needs it?  Why does it play such a vital role in the show?

Why Business Credit?

There are a number of reasons why it is essential to actively attempt to build credit.

Shield Your Personal Credit Report

It is important to organization success that you develop business credit. Without a business credit score, your capability to fund your business rests entirely on the qualities of your individual credit score. That’s not a big deal if you have great personal credit.

However, business financing can impact your personal credit scores as well.  If you finance your business on the merits of your personal credit, you will likely find your balances hover near your limits.  On personal cards the limits are not as high as most business cards allow.

This has a negative effect on your credit report even if you are making your payments on time. If your business has its very own credit report, it’s not a problem. Limitations are higher, so you have a lot more credit to deal with. Regardless, it doesn’t impact your personal credit score.

When you have solid business credit, you have accessibility to funds to do the things you need to do throughout the normal course of company business. Not only that, but you can do what you need to do without worrying about depleting cash reserves.

In short, business credit opens the door to higher limits, lower interest rates, and it protects your personal finances from being affected by your business transactions.

 

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Business Credit vs. Personal Credit: A Character Study

While their character purposes are similar, they are not the same.  They play roles that are the same, but in very different circumstances.  Think of the difference in a parent and a boss.  Both can tell you what to do.  Both can teach you, guide you, and help you thrive where you are.  They are not the same however.  A parent leads and guides in your personal life, while a boss does so at work.  A boss can fire you from your job, but your parents cannot.  Your parents can kick you out of your house, but you boss cannot.

Personal credit and business credit kind of work the same way.  Your personal score doesn’t have to affect your business, and your business credit doesn’t affect your personal finances, if you set things up properly. There are other differences as well.

Key Differences Between Personal Credit Reports and Business Credit Reports:

  • Personal FICO scores range from 300 to 850
  • Business credit scores usually range from 0 to 100.
  • FICO algorithms are commonly used by consumer credit bureaus to generate a credit score.
  • Business credit scores do not follow industry standard algorithms, meaning they can vary greatly between credit reporting agencies.
  • Business credit usually include only accounts that are in your company’s name. Your personal accounts are on your personal credit report.
  • You can get a free copy of your personal credit report from the three major consumer credit reporting agencies each year. This includes Experian, Equifax, and TransUnion.  There are also several free options for getting a glimpse at your credit scores at any given time.
  • Business credit is quite different when it comes to accessibility. You have to pay to see your company’s credit report and to find out the score at all three major business credit reporting agencies, including Dun and Bradstreet, Experian, and Equifax.
  • Not just anyone can see your personal credit report, but business credit reports are public. Anyone that wants to pay can see your business credit.

Dun and Bradstreet: The Star of the Show

So, who is the star of the business credit report show?  It’s a unanimous vote for Dun and Bradstreet.  They are the oldest and most commonly used business credit reporting agency. They offer way more than just a single business credit score. There are multiple reporting options that lenders can choose from to assess the credit worthiness of a specific business. Following is a breakdown of what they offer, with an explanation of what it all means and why they are a credit reporting super star.

Credit Reporting at Dun and Bradstreet: What Does Dun and Bradstreet Do?

The quick answer is they provide lenders with business credit reports to help them make lending decisions.

There are six different Dun and Bradstreet reporting options, all measuring different areas of credit worthiness.   The most commonly used and simplest to understand Dun and Bradstreet credit report is the PAYDEX.   Generally speaking, this is the Dun and Bradstreet credit score most like the consumer FICO score.  It measures the speed of payment and ranges from 1 to 100.  A 70 or higher is “good.” For example, a score of 100 means that the company makes payments in advance, and a score of 1 indicates that they pay 120 days late, or more.

Without Further Ado: The Many Faces of the Dun and Bradstreet Credit Report

In addition to the PAYDEX, there are many other options for a business credit report.  Dun and Bradstreet offers several different types.

dun and bradstreet credit signal

Dun and Bradstreet Delinquency Predictor Score

The delinquency predictor score measures the likelihood the company will not pay, will be late paying, or will fall into bankruptcy.  The scale is 1 to 5, and a 2 is considered good.

Financial Stress Score

The financial stress score is a measurement of the pressure on a company’s balance sheet.  It indicates the likelihood of a shutdown within a year.  It measures with a minimum of 5 and a maximum of 1, with a score of 2 being a good thing.

Supplier Evaluation Risk Rating

This is a rating that ranks the odds of a company surviving 12 months.  The minimum score is a 9 and the maximum is 1.  A score of 5 is good.

Credit Limit Recommendation

The credit limit recommendation shows a business’s borrowing capacity.  It is a dollar amount recommendation for how much debt a company can handle. Typically it is used by creditors to determine how much credit to extend.

D&B Credit Rating

This is an estimation of overall business risk on a scale of 4 to 1.  A two is considered good.  The rating is given in conjunction with letters, the combination of which indicate a company’s net worth.

 

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Even if there isn’t enough information on a business to assign a regular rating, Dun and Bradstreet will assign what they call a Credit Appraisal Score.  This is based on number of employees. Another option is an alternative rating based on what data is actually available.

It is also important to note that the letter portion of this rating cannot be assigned as good or bad, as net worth is not necessarily an indicator of how stable a business is.

What Goes into a Dun and Bradstreet Credit Rating?

The various scores and ratings are based on data that they receive from a number of places. The first source is the business itself, but they also tap into public records.  A business must submit a financial statement to D&B before they can have a full rating.  In the absence of that, a limited rating will be issued based on number of employees.  For example, the rating would be 1R if the business has 10 employees or more, and 2R if they have less than 2 employees.

A composite credit appraisal may also be available in the absence of a financial statement.  A business is only eligible for a rating up to a 2 in this case however. They are ineligible for a 1 rating without a financial statement.

In addition to self-reporting financial statements, you can self-report trade references to D&B, which makes it easier to build business credit faster.  You will need a DUNS number to have a credit report with them at all, but that is free and easy to get on their website.

Dun and Bradstreet and the Commercial Credit Score

The commercial credit score is the term used to describe the actual business credit score.  It has three separate parts, and each predicts how likely the business is to default on bills or become delinquent.  Following are the three parts and the scales by which they are ranked.

Commercial credit score

Measured on a scale of 101 to 670, it predicts the probability of a company becoming delinquent.  A score of 101 is most probable, so that’s bad.  A score of around 500 is good.

Commercial credit percentile

This is measured on a scale of 0 to 100.  It measures the probability of delinquency as well, but against other companies in the Dun and Bradstreet system.  A score of 1 is the highest probability compared to other businesses in the system, and most say a score of 80 is good.

Commercial credit class

This is a method of dividing businesses into classes based on the probability of delinquency.  Companies in class 1 are the least likely to be delinquent.  If you are in class 2, that’s good.

Who Are the Other Characters?

In this great show of business credit reporting agencies, it can be easy to forget there are other players when Dun & Bradstreet seems to shine so bright.  There are, however, other agencies that offer business credit reports.

Equifax

They collect their information in ways not unlike Dun and Bradstreet, including: information from public records, financial data from the business, and payment history from creditors.  In addition, they factor information about credit utilization, or how much credit a business is currently using versus how much they have available, into their calculation.

They then use the information collected to generate various scores.  These scores include the business credit risk score and the business failure score. The business credit risk score measures how likely it is that a business will become 90 days or more delinquent on bills over the next 12 months.  It ranges from 101 to 992.  The business failure score ranges from 1,000 to 1610, and it predicts how likely it is that the business will file for bankruptcy over the next year.  The lower the score, the higher the risk.

Another score they offer is the business payment index.  This is their version of the D&B PAYDEX, and it even runs on the same scale, 0 to 100.  It indicates payment history over the past year.  Different from the PAYDEX however, you have to reach a score of 90 or higher for it to be a “good” score.

Equifax also offers business identity reports that serve as confirmation that a company actually exists. It also verifies details such as the company’s tax ID, number of employees, and yearly sales.

Equifax does not allow business owners to request a report on their company.  They decide themselves when to start a credit file on a specific company.

Experian

Experian’s credit ranking, Intelliscore, uses more than 800 variables to predict a company’s risk of defaulting or becoming delinquent. A 76 or higher is considered good with Intelliscore.  That indicates a low risk of late payments or default.  A score from 51 to 75 indicates a low to medium risk and 26 to 50 indicates medium risk.  From 25 down 1 is medium high to high risk.

 

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Intelliscore is considered a blended score of both the business and business owner’s information.  It offers insights into a business’s public record findings, collections, payment trends, and overall business background. A major difference between Experian and the other two characters is that they do not ask businesses to self-report at all.  Rather, they collect all the information themselves. Since it includes personal information, you do have to give permission for a lender to view this report.

Specifically, the Experian credit ranking gives insights into a company’s payment trends, public record filings, collections, and general business background. The result is a blended score calculated using both the business and business owner’s information.

The Experian Database and Credit Report Generation

Experian’s database has information on over 27 million businesses.  Reports are generated with information from the database, which houses information on bankruptcy filings, payment history, collections, banking, insurance, and leases.

There has to be a minimum amount of information in the database about a business before Experian will generate a score for it. There must be at least one tradeline in the system, so you should definitely do business with a company that will report to Experian if you want to build business credit.

Applause or Rotten Vegetables: Which Credit Reporting Agency Really Matters?

All the players are important for this reason.  You do not know, and cannot choose, which one your lender will use to base their decision upon.  This means it is important to build strong business credit with each one.  While a lot of this is out of your control, you can choose which starter vendors you work with.  Since not all starter vendors report to all credit reporting agencies, you need to make sure you do business with a variety that report to each one.  Then you can be on your way to building strong business credit.

 

 

 

 

 

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