A recent update to the SBA’s Standard Operating Procedure (SOP) for lenders participating in the Small Business Administration (SBA) loan guarantee program could make getting an SBA-guaranteed small business loan a little more challenging if you and your small business have less than perfect credit.
According to the update, this SOP will go into effect on Oct. 1, 2020. The pertinent part of the update regarding credit qualification criteria is as follows:
All 7(a) Small Loan applications will begin with a screening for a FICO® Small Business Scoring ServiceSM Score (SBSS Score).
The SBSS Score is calculated based on a combination of consumer credit bureau data, business bureau data, Borrower financials, and application data (The SBSS Score is not to be confused with the Small Business Predictive Score (SBPS) used by the SBA’s Office of Credit Risk Management). The minimum credit score is based on the lower end of the risk profile of the current SBA portfolio. As of the effective date of this SOP, the minimum acceptable SBSS score is 155, but that score may be adjusted up or down from time to time. Loans will an SBSS score lower than 155 must be fully underwritten under Standard 7(a) procedures. SBA will post on its website the minimum acceptable SBSS credit score for 7(a) Small Loan applications at www.sba.gov/partners/lenders/7a-loan-program.
Editor’s Note: The link to Nav’s explanation of the SBSS Score was not a part of the SBA’s notice and was added by the editor.
Although this formally increases the minimum SBSS score, it doesn’t mean you can’t get an SBA loan if your score doesn’t meet the 155 threshold. In fact, most SBA lenders are already looking for scores of 160 or above. It simply means that your loan application will go through a manual review and can’t be approved automatically under delegated authority.
Are There Alternatives to an SBA Loan?
There are a number of reasons a small business borrower might consider other options to an SBA loan (including the minimum credit criteria mentioned above). Time to funding, term length, and other factors could impact a decision regarding which business loan would be a good fit for your business and your individual situation.
With that in mind, if you don’t qualify for an SBA loan or the terms of an SBA-guaranteed loan don’t meet your needs, there are other options. You can get matched to those options based on your real data at Nav.