Understanding Business Credit
As a small business owner, understanding your business credit score is a key determinant in securing funding and navigating the financial landscape. This post explores what a FICO SBSS business credit score is, its importance for small business owners, and practical strategies for improvement. Furthermore, we’ll delve into the connection between your FICO SBSS score and Small Business Administration (SBA) 7(a) loans.
FICO SBSS Credit Score
Understanding the Score
The FICO SBSS (Small Business Scoring Service) credit score is a tool used to assess the creditworthiness of small businesses. Ranging from 0 to 300, with 300 being the best score, it considers various factors such as personal and business repayment history, assets, cash flow/revenue, business history, age of business, any liens or judgments against the business, and several other factors. While the specific weighting of these factors is proprietary, the score provides a comprehensive view of a business’s financial health.
Securing SBA Loans
Maintaining a healthy business credit score is critical when seeking financing options, particularly in the context of Small Business Administration (SBA) loans. The SBA, starting in 2014, began incorporating FICO SBSS scores into the pre-screening process for the 7(a) loan program. While the minimum FICO SBSS score at prescreen can be as low as 140, a score of 160 or more is often required for SBA loan approval, with many lenders preferring scores closer to 180.
Business credit is the number one factor for approval for a StrongTerm Expedited SBA loan, so knowing how to improve it is key to securing the best loan terms on the market.
How to Boost Your FICO SBSS Score
Boosting your FICO SBSS score involves a combination of personal credit improvement and effective business credit management.
Personal Credit Improvement
A strong personal credit score is a foundational component of a healthy business credit profile. Your personal creditworthiness significantly influences lenders’ perceptions of your business’s financial stability. Here are key strategies to enhance your personal credit:
- Timely Bill Payments: Make all personal bill payments, including rent, utilities, and student loans, on time to enhance your personal credit.
- Avoid Unnecessary Hard Credit Inquiries: Minimize unnecessary hard credit inquiries, as each inquiry can impact your credit score.
- Reduce Balances on Credit Cards and Unsecured Lines of Credit: Lowering revolving balances can have a dramatic impact on your FICO score.
- Monitor Regularly Using a Free Credit Monitoring Tool: Regularly monitor your credit using free tools online or provided by bank or credit card companies to stay informed about changes and address issues promptly.
- Avoid Unsecured Personal Loans: Refrain from using unsecured personal loans to fund the business, as they can negatively impact your personal credit, complicate applying for a loan, and reduce approval chances.
Separating Business and Personal Finances
- Timely Business Bill Payments: Ensure all business bills are paid on time and in full to maintain a positive business credit history.
- Avoid Mixing Finances: Refrain from paying personal bills or expenses using business bank accounts or credit cards.
- Separate Credit Cards: Obtain separate credit cards for business and personal use to distinguish between the two.
- Avoid Using Unsecured Personal Loans for Business: Steer clear of using unsecured personal loans to fund the business, as it can jeopardize both personal and business financial health.
Building Business Credit History
- Apply for a D-U-N-S Number: Obtain a D-U-N-S number through Dun & Bradstreet to establish your business’s credit profile.
- Positive Payment Reports: Request vendors to send positive payment reports to business credit bureaus.
- Open a Business Credit Card: Utilize a business credit card responsibly, staying within the credit limit and making timely payments.
- Open Small Business Tradeline Accounts: Consider opening small business tradeline accounts with vendors like Home Depot, which offer net 30 commercial account programs. These companies report to Dun & Bradstreet and credit bureaus, contributing positively to your business credit history.
Conclusion
Understanding and actively managing your FICO SBSS business credit score is crucial for small business success. By implementing strategies to boost your score, you not only enhance your chances of loan approval but also establish a foundation for credibility and trust in your business relationships. As you navigate the competitive landscape of small business financing, leverage your improved credit score to unlock opportunities for growth and sustainability.
Find out more about StrongTerm
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