Many small business owners look to the Small Business Administration (SBA) to help with financing to turn that great business idea into a profitable business reality. Naturally, the SBA wants to make loans that have the greatest chance of being paid back, and they do that by conducting research on prospective borrowers’ credit history, as well as their current finances.

The SBA began using credit scoring in 2012 under the Small Loan Advantage program, an incentive program to motivate growth by providing lower-dollar 7(a) loans to smaller businesses. Since 2014, credit scoring has been used on all 7(a) loans up to $350,000 (excluding SBA Express and Export Express).

The SBA credit scoring tool uses the FICO® Small Business Scoring Service® product (SBSS) to expedite credit decisions. According to the SBA website, “[The SBSS credit scoring tool] draws on multiple data sources and more than 100 combinations of consumer and business analytical models to help streamline the loan approval process. The overall statistics on SBA’s $60 billion-plus portfolio show that businesses with scores at, or above the designated cut-off have had very good payment history.”1

To qualify for any SBA guaranty on business loans of $350,000 or less, a business must maintain an SBSS score of 140 or better. Your company’s SBSS score may also affect your ability to access capital from traditional lenders, like banks, as well as from alternative or online business lenders.

What is the SBSS Score? In the early 1990s the Fair Isaac Corporation (FICO) developed SBSS as a way to score business credit. It is the same company that developed the FICO score commonly used to rank personal credit. 

What determines the score? Although FICO’s formula is proprietary, in general each company’s SBSS score is based on two key risk barometers: (1) the company’s history of payments; and (2) the financial and personal credit histories of company principals. Scores range from 0 to 300.

The supporting documentation to substantiate an SBSS score includes such documents as:

  • previous company loans
  • a history of payments to vendors, sub-contractors and other stakeholders
  • business capital assets (commercial property, equipment, intellectual properties, etc.
  • company receivables
  • credit histories of all principals – especially owners
  • pooled data available from other sources, from a mortgage to a college loan

If you have a brand-new company with no business history, you will probably have a low SBSS score, but even established small businesses depend heavily on the personal credit histories of their principals.  

How is the SBSS score used? It’s used to simplify the loan assessment process of lenders. Just as you have a personal credit score based on a history of payments, your company’s SBSS score simplifies the approval process undertaken by banks to evaluate a company’s application for loans or lines of credit.

Simply put, thousands of lenders – sources of business capital – use your company’s SBSS score to determine whether the business is worth the risk of a large capital loan. If the company fails to meet SBSS minimums, it becomes more difficult (and generally more expensive) to obtain business financing through traditional sources.

Before you apply for an SBA-backed loan, or a loan from any commercial lender, talk to the bank’s business professionals about ways to present your company most favorably and increase your SBSS score if that’s what needed to get qualified for financing.