SBA Announces New Predictive Business Credit Score
Starting in July, credit unions and other lenders can use a new SBA credit score that will combine an entrepreneur’s personal and business credit scores.
The score will be available to all of the agency’s lending partners for loans of $350,000 or less, said SBA Administrator Maria Contreras-Sweet, pictured at left, who spoke on creating a more inclusive SBA during a speech at the Center for American Progress Tuesday in Washington.
“Our Office of Capital Access has been testing and refining a predictive business credit scoring model for more than a decade, combining an entrepreneur’s personal and business credit scores,” Contreras-Sweet said.
She added, “We’re now so confident of our model’s predictive value on small loans that we’re eliminating cumbersome and impeding analyses of a company’s cash flow, a step that can delay loan decisions.”
The SBA’s credit score also ensures that risk characteristics, rather than socio-economic factors, are used to determine if a potential borrower is creditworthy, according to Contreras-Sweet.
The agency is focusing on three areas to help get more loans to qualified business owners.
First, it is planning to modernize and implement smart systems, so that the SBA keeps pace with technological advances that are changing how the agency conduct business including automating its credit analysis using predictive systems.
Second, the SBA wants to create a more inclusive agency by tailoring programs that embrace its nation’s dynamic demographics, Contreras-Sweet said. Four out of five loan applications the SBA receives from Hispanic-American and African-American business owners are for $150,000 or less.
“These smaller loans, then, are a vital part of our promise of equal opportunity in America. If a bank can’t quite say ‘yes’ to a borrower, we’re asking them to partner with a microlender or a Community Advantage lender that can, she offered.
Third, the agency wants to serve as a market maker for small companies by opening new business channels within the federal government, corporate supply chains and international commerce.
The SBA is also prepping to launch SBA One, an interactive and user-friendly SBA lending platform that aims to save credit unions and other lenders processing time on the agency’s 7(a) loan program by replacing fax machines and paperwork with automated uploads of documents, generation of forms and allows electronic signatures, according to Contreras-Sweet.
“By making the process quicker, cheaper and more intuitive, these reforms will help existing lenders do more small-dollar lending,” she said.
The SBA also wants to work with microlenders and community development financial institutions to provide technical assistance to underserved borrowers. Asuccessful microloan can be refinanced into a community advantage loan, which can be refinanced into a low-interest bank or credit union loan, helping borrowers build credit, Contreras-Sweet said.
“Our loans go to entrepreneurs who don’t quite yet meet conventional underwriting standards. SBA has a $100 billion portfolio that’s highly stimulative,” she noted. “Every dollar we inject into the economy is capital that would otherwise stay on the sidelines.”