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Bank Business Lending, most of us think if one bank will want to loan on a particular business, so will the other banks, after all, they all are looking at the same numbers aren’t they? I have presented one borrower with an extensive bank presentation to four banks and believe it or not, I got one approval and three different turndowns – REALLY?

What is even more confounding is that the banks that turned the loan down, turned it down for different reasons. I’m like you, I thought they went to the same schools and took the same banking classes. I thought that if the business proposal was the same I would get the same sort of answers but low and behold, the reasons for turning the business down were different.

Bank One – Small Bank in St. Louis Area wanted to approve with SBA but decided to lend up to 70% on the Equipment. I thought this was very aggressive lending but was the way to go without SBA which was more costly and time consuming.

Bank Two – Very Large Bank but local to St. Louis Area. This Bank turned the loan down do to not enough Collateral. The bank said it would apply to SBA but wanted the borrower to put in 20% as Equity which the borrower/buyer did not have in cash. 

Bank Three – Small Local Bank that would be very close to the borrowers shop. This bank wanted the Seller to Guarantee the loan but the Seller who was the Borrowers father did not want to guarantee the loan because he was already taking back a note for $60,000 to $100,000 of the deal which was 43% and 71% of the loan. 

Bank Four – Large Local Bank with high loan losses from the 2008 – 2010 recession. This bank would only do the loan with SBA Guarantee but with the Seller and Borrower being related, they would have to get an appraisal on the business which they thought would be cost prohibitive.

The loan was probably complicated by the fact that the borrower was a female and even though the Borrower had worked in the business all her life, she had no experience as an owner and manager of the facility. The Borrower had good credit and owned a home but the home had little equity over the last three years. The borrower also owned her car with one or two payments left but the cars value was probably approximately $10,000 or less. 

You may think, OMG, but this is really an exercise in why when looking at a Business Loan – the borrower needs to have at least four to six banks look at the Borrowers Loan Proposal. The days of having your local bank look at the deal is over. The other reason is that a bank may take from one month to three months to approve or decline a loan. If you take the banks one at a time you may be looking for a loan for up to a year or more. 

Summary: Banks are allowed to be very subjective in Business Lending. This is very different from Residential Lending where most, if not all, of the subjectivity is Prohibited by Law. Banks can be subjective in many aspects of your business loan like, Equity, Collateral, Guarantees, and Whether or not, they will work with the Small Business Administration.

Please call or Email me with any questions or comments. Contact info and other information is located on my webpage at www.schlueterfinancial.com or Email me directly at roger@rogerschlueter.com      

 

The SBA CAPline Program is part of the SBA 7(a) Loans Program and many of the rules are exactly as they are for the SBA 7(a) Program. The CAPline is broken up into Four (4) types of CAPlines that are used for Lines of Credit but the use is different and some of the rules are also different. I will explain each below starting with the most used and then will describe the three lesser used CAPlines.

1) The Working Capital CAPlines are a Line of Credit that is based on the companies generated Accounts Receivable (Sales made but the cash is not collected). The use is to finance short term Working Capital Needs of the borrower. The Targeted processing time is 6 days. The Maximum Maturity is – Up to Ten Years. Collateral will be a 1st Lien on Accounts Receivable and Inventory but may take additional Collateral to ensure a 1:1 Collateral Ratio. The rest of the attributes are the same as the SBA 7(a) Program.  

2) Contract CAPlines are used to finance all costs associated with specific contract(s), but not Profit. May be revolving. Collateral is an Assignment of the Contract Proceeds. The rest of the attributes are the same as the SBA 7(a) Program.

3) Seasonal CAPlines are used to finance Seasonal Working Capital Needs of the borrower. They can be revolving. A 30 day zero balance each year is required. Collateral is a First Lien on Seasonal Inventory and Receivables. The rest of the attributes are the same as the SBA 7(a) Program. 

4) Buildings CAPlines are used to finance the Direct Costs associated with the Building of a Commercial or Residential Building. Borrower must have Previous Building Experience of the same type. Speculative Building is allowed with Documentation to Support Likelihood of Sale. Collateral is No Less than a Second Lien on the Real Estate Project. The maximum Maturity is 5 years. The rest of the attributes are the same as the SBA 7(a) Program.  

1) Maximum Loan Amount – Limited to $5,000,000 to one borrower.

2) Percent of Bank Guarantee – The Guarantee is 85% of loans $150,000 or less and 75% of

     loans over $150,000

3) Interest Rate – Maximum Interest Rate is Prime + 2.25% for loans with maturities under 7 years.     Prime + 2.75% for loans with maturities over 7 years. Rates can be 1% higher if the loan amount     is between $25,000 and $50,000. Rates can be 2% higher if the loan amount is $25,000 or

    less.

4) SBA Guarantee Fees – Maturity of 12 months or less the fee is 0.25%

                                        Maturity over 12 months:

loan amount of $150,000 or less is 2.0%

                                                        loan amount of $150,001 to $700,000 is 3%

                                                        loan amount of $700,001 to $5,000,000 is 3.5% up to $1                                                                    million PLUS 3.75% of portion over $1 million.

Banks have a problem with making a Line of Credit for more than one year at a time. Thus the program is under used. The way to approach the bank is to make the loan for one year and then extend the loan toward the end of the maturity. The borrower will pay the guarantee fee of 0.25% the first year and if extended into year 2 the borrower will pay the remaining guarantee fee for the difference of the two maturities or 0.25% plus the 1.75%. if the loan is $150,000 or less. The Guarantee Fee is raised to whatever the Guarantee Fee would have been for a loan over 12 months with the that particular loan amount, and the borrower will pay the difference in that Guarantee Fee.

Please call or Email me with any questions or comments. Contact info and other information is located on my webpage at www.schlueterfinancial.com or Email me directly at roger@rogerschlueter.com 

                                        

Most Business People think that if you are not a citizen, then you cannot get a Small Business Loan though the Small Business Administration. This is a misnomer but the Small Business Administration does not make it an easy process. I am going to give the General Rules but the SBA’s SOP (Standard Operating Procedure ) covers the process in much more detail. 

The bank when filling out the paperwork for a SBA Loan will hopefully also fill out the SBA Loan Eligibility Form. This form asks if all the principals are U.S. Citizens. If the answer if false, the banker needs to fill out the Alien Ownership Eligibility Addendum (Addendum A ). This Form asks several questions in a, Yes or NO format.

1) If you are an Undocumented ( illegal ) alien, you are NOT ELIGIBLE FOR SBA FINANCING.

A) If you are A DOCUMENTED ALIEN, then you must obtain USCIS Verification of the Status of the documented alien using USCIS Form G-845. You can Submit this USCIS Verification to the SBA with the Application. Electronic Verification is Available by E-Mail to SacramentoAlienVerification@SBA.gov

2) Is the business at least 51% owned by individuals who are either U.S. Citizens or have Legal Permanent Resident (LPR) Status and who control the management & daily operations of the business. If Box Checked then the applicant is not subject to additional requirements:

i) The application must contain assurance that management is expected to continue in place indefinitely and has U.S. citizenship or verified LPR status.

ii) Management must have operated the business for at least 1 year prior to the application date

iii) Management must provide a personal guaranty, unless the Lender’s Credit Memo explains why this guaranty is not needed, and

iv) Collateral is pledged that is sufficient to pay the loan in full at any time.

These USCIS Verification and Alien Ownership Requirements need to be met. The loan will be ineligible until they are met.

3) If the Applicant is a Foreign-Owned Business then the Applicant needs to comply with the following: 

 Be located in the U.S.,

 Operate primarily within the U.S.,

 Pay taxes to the U.S.,

 Use loan proceeds exclusively for the benefit of the domestic operations

 Use American products, materials and labor

 Separate continual and consistent management of the business has been provided by a U.S. citizen or by a verified LPR and will continue indefinitely

 Management has operated the business for at least 1 year prior to the application date

 Management will provide a personal guaranty, unless the Lender’s Credit Memo explains why this guaranty is not needed, and

 Collateral is pledged that is sufficient to pay the loan in full at any time

This is not an End-All for Non-Citizen obtaining a SBA Loan. The absolute End-All is given in the SBA’s SOP under the Subpart B, Chapter 2, III. Eligibility Requirements, E. Businesses Owned by Non-Citizens. The SOP devotes five pages to this subject. 

Please address any questions or comments to roger@rogerschlueter.com or visit my website at schlueterfinancial.com   

The SBA Patriot Loan is actually called the SBA Patriot Express. This loan is a mixture of using some of the rules of the SBA 7a Program and some rules of the SBA Express Program. The Bank must be SBA Express Loan eligible, in order to use the Patriot Express Program.

. 

The loan is Limited to a Total Loan Maximum of $500,000.

The SBA Percent of Guarantee is the same as the SBA 7a Program. The Program guarantees loans of $150,000 and less, 85% of the loan balance at any point in time of the loan term. The Guarantee is 75% for loans over $150,000 up to the Maximum of $500,000.

The Use of Proceeds is the same as the SBA 7a (Term loans for land, building, equipment, inventory, working capital, refinance, leasehold improvements and seasonal line of credit.) but the Patriot also lets the bank finance Revolving Lines of Credit up to a seven year maturity. 

The Maturity for the Patriot Loan is up to 7 years on Revolving Lines of Credit and the same as the 7a Program for Real Estate 25 years, Equipment/inventory/working capital 10 years.

Maximum Interest Rate is the same as the SBA 7a program which is less than the SBA Express Program. The Max Interest Rates are: 

Loans less than 7 years

$0 to $25,000 is Prime + 4.25%

$25,001 to $50,000 is Prime + 3.25%

Over  $50,000 is Prime + 2.25%

Loans 7 Years or Longer you can add a half a point (add 0.50%) to each category.

Guarantee Fees are charged on the on the guaranteed portion* only. The fee is 0.25% on loans with a maturity of 1 year or less. The Guarantee Fee on Loans over 1 year in maturity are 2% for loans up to $150,000 and 3% of loans over $150,000. 

* Loan is for $100,000 then the 2% would be levied on 85% of the $100,000 or $85,000 for a Guarantee Fee of $1,700.

Who Qualifies: same as the SBA 7a Program. The business needs to be For Profit, meet 7a Size Standards, show Ability to Repay, Eligible Type of Business, and be of Good Character.

– in Addition the Patriot Express Loan business must be owned and controlled by one or more of the following groups:

Veteran

Active Duty Military

Reservist or National Guard Member or spouse of any of these groups

Widowed Spouse or a Service Member or Veteran who died during Service or of a 

Service-Connected Disability

Turn Around Time – The turn around time is suppose to be 24 hrs but that may very. The Turn Around is still faster than the other programs.

The Main Advantages:

Fast Turn Around

Maximum Loan of $500,000

Lower Rate than the Regular Express Program

Streamlined Process

Easy to Use Line of Credit

No Collateral for Amounts of $25,000 and less

Please contact me if you have any questions at roger@rogerschlueter.com or visit my website at schlueterfinancial.com for other information.

Obtaining a Business Commercial Loan can be very labor intensive for the borrower because of the volumes of information that is asked for by the Bank. The borrower, I’m sure thinks: is all this information necessary, and what information does the bank really check?

This is a list of what the bank checks and what it may not check:

1) Your will be asked to provide a Personal Financial Statement. This document will ask about Assets that you own and Debts that you have. 

A) Assets: Most Cash and Savings Account will rarely be checked and they can change daily,

             so these numbers are a moving target. Most banks do not call the Banks of Account to get

             a balance. If you have too much cash they may ask you to put this money in the deal.

    – Accounts Receivable are a number provided by the borrower and usually are not asked                  to be checked.

   – IRA’s or Retirement Accounts cannot be used as collateral on a loan so the bank usually

             has no need to verify these accounts.

   – Life Insurance Cash Surrender Value may be used as collateral for any Business

             Commercial Loan so the bank may check this value.

           – Stocks and Bonds again are a moving target but the bank may want to use these as

              collateral also, so the Bank may want verification of their value.

           –  Real Estate can be checked as to the Perceived Value and the Mortgage that you have                   on this property. Remember, you are not an appraiser so this is your Perceived Market

             Value.

   – Automobiles, again this is you Perceived Value of your Automobiles.

   – Other Personal Property, this is your personal effects: furniture, tools, jewelry, clothes,

              equipment, collections and anything that you own personally that has a Perceived Value.

   – Other Assets can be anything you own that has value. Usually it is used for a Business that

              you own or some special asset that you want to value separately. Again this is your

              Perceived Value.

Liabilities: Liabilities are a little easier. Pull your Credit Report and report everything that

            shows up on this report. Some financial entities do not report to the Credit Bureau and you

            want these two to match (your liabilities and the liabilities on the Credit Bureau). Loans on

            life insurance do not usually report to the Credit Bureau. Report unpaid taxes only if they

           are owed for a prior year to the IRS.

C) Salary or Other Income: this should be reported as the Gross Amount before Taxes and

            other Deductions. Contingent Liabilities (Legal Claims or Judgments) that show up on the

            Credit Report should be Reported.

2) Always use numbers that are reported on Tax Returns for Personal and Business because the Bank will usually have you sign a 4506 -T which is a form to check on the Tax Return Information Reported to the IRS.

3) Resume: if you have provided one, are usually not checked for Accuracy. 

4) Projections of Income and Expenses are just that: they are Projections and are rarely checked

    for accuracy but may be checked with an Industry Publication to see that the averages are within

    the industry guidelines. Such publications are RMA or S & P averages.

Summary: You need to make sure that all your numbers that you report can be matched with a Credit Bureau or some other report such as a Tax Return. Many items are of a subjective nature, such as the Cash, Accounts Receivable, and Personal Assets. All values that you give for Real Estate or Vehicles are you Perceived Value, I would always err on the side of High.

Please email any questions to roger@rogerschlueter.com or visit my webpage at schlueterfinancial.com     

 

 

You have just submitted a Commercial Loan request to a bank though the Banks Loan Officer. You forgot to ask when the Officer would have an answer for your Commercial Loan. Thats O.K. you think, he will call when it is approved. You wait a week, maybe two weeks before you call him. You are told that they need a little more time and that the approval will be another week. That’s O.K. you think what’s another week. After another week and a half you call the officer only to find out that he is on vacation or out of the office. You have waited a total of three and one half weeks almost a month and you have no idea when the loan will be approved. This senario is more common that you think. I have had borrowers tell me they waited up to three months only to be turned down on the loan.

What can help is to have all the information that is needed by the loan officer at the first meeting. This will include answers to all of his questions. If you have all of the information needed and all of the questions thought out and answered, in case the loan officer asked about those questions, then you would think they would at least get you an answer in a couple of weeks. Don’t bet on it! The bank can be as subjective as they want on a Small Business Loan as long as they don’t discriminate according to Race. Nationality, Religion, Sex, Marital Status and Age (as long is the person is of age to have the capacity to contract). It seems there is a rule that says that if the Small Business is denied credit and the small business asks the bank why, then the bank has 30 days to respond and has to keep the application for one year. This has nothing to do with the making of a decision – the bank can take as long as it wants to make a decision on the loan. 

Most Loan Officers have a Business Loan Quota, each month, quarter or year, to reach. The quota is not an the number of loans but the dollar amount of all loans made. This Loan Amount threshold can be in place to reach Bonuses or to just Keep Their Job. They do almost the same analysis on small and larger loans, so it is not big surprise that they try to concentrate on the large loans which will help them meet their quota. Loans of under $100,000 are almost always put aside to work on other larger loans. 

Real Life Example: I have a business buyout by a daughter to buy her fathers business. The purchase price is approximately $140,000 and the father will take back a note for any amount to make the deal work. The only collateral is $80,000 in Equipment. This deal was looked at by three banks initially. One large bank and two small banks. The larger bank denied the loan first but said they might do it if they get $10,000 Cash Down and an Appraiser to verify the equipment value. The other small bank took approximately six weeks to turn the loan down and the third small bank has yet to respond in 2 months and one week. This is with phone calls being made at least twice a week. The banker usually does not return your phone call. The one banker tells us the same thing, “I have to finish writing up this loan this afternoon and will get a second signature needed to approve it in the morning”. The loan officer said this same excuse for at least five times, he must think we are really stupid or he is smoking crack.

You may think the larger bank has said they will approve this loan but the borrower does not have $10,000 cash to put into the deal and an Equipment Appraiser usually costs in upwards of $2,000 or more. This is cost prohibitive in my opinion because the equipment is only worth $80,000. I will try to update this article when I get an answer to the third bank. We have showed this loan to another three banks and we are very hopeful that one will entertain this loan request with an approval. Banks are very careful at this point in time and they are not lending to make money but are lending to, “not lose money”.

Try to nail the bank down to a timetable when presenting a loan to a bank. Try to hold the loan officer and the bank accountable. This is very hard because the bank will remember if you go over the banker head or report them to regulators. You are stuck because you need the bank to lend to you and you cannot complain or report them. The regulators realize this but refuse to enact any real regulations to prevent it. The regulators are in place to keep the bank in line and lending according to the Bank’s Loan Policy, not to help the Small Business Borrower. 

Please email me with any questions or comments. My email is roger@rogerschlueter.com My website is schlueterfinancial.com and you can find more info and my contact info at the website. 

The SBA Form 912 Statement of Personal History has mainly two purposes: 

1) The main purpose of the form is to weed out the Criminals or Persons of Poor Character. This is subjective if the Offence was years ago or if the person has been convicted of a crime.

2) The second purpose of the form is to run a name check to see if the individual is on the list of possible Terrorists.

Both of these checks are done by the FBI and there can be substantial penalties for any untruthful answers to any of the questions.

The main questions on the form are questions 7, 8, and 9. They all deal with any type of arrest or criminal charges that may have been dismissed, discharged or convicted. SBA sends these forms to the FBI and they will pick up things that you thought, never really got anywhere. These questions along with the question on being a U.S. Citizen are all initialed by the applicant. The SBA will not process unless the borrower initials these questions. 

SBA says in their SOP (Standard Operating Procedure) that the SBA cannot provide financial assistance to businesses with Associates that are incarcerated, on probation, on parole, or have been indicted for a felony or a crime of moral turpitude.

An application can be a accepted for processing if the individual indicates an arrest record, but was acquitted or the indictment was dismissed  and the individual is not incarcerated, on probation or on parole for any offence.

An individual with a deferred prosecution is treated as if the individual is on probation or parole Such an applicant is not eligible. 

The SBA Form 912 is used to determine eligibility. If the individual answers yes to question 7 the then the applicant is not eligible. If the individual answers yes to questions 8 or 9 then the the individual must go though a background check which usually requires a Finger Print Card being printed and sent with an detailed explanation of the situation. 

This process of the background check can take months so if at all possible you need to see if the local SBA Office can handle the Eligibility Approval. The local office can usually waive or approve situations of up to a certain level. This should always be pursued first. Feel free to check the SBA’s SOP for further information – there is about seven pages devoted to the subject under the Eligibility Section of the SOP.

Please email me with any questions to roger@rogerschlueter.com or go to my website for more contact information at schlueterfinancial.com  

 

You would think that the smaller the loan, the easier it would be to find financing. This is a major fallacy unless you have a CD to pledge or Equity in your house that is more than 20% to 25% of the Current Market Value. Loans of $25,00 to $100,000 are very hard to finance for three reasons:

1) Loan Officers do the same amount of work for small loans as they do for big loans

2) Banks can use SBA for loans of any size but have a reluctance for small loans because of the work involved in the SBA process.

 

3) Banks do not think of SBA for borrowers needing very small amounts of $5,000 to $50,000. The SBA can guarantee loans of $25,000 and less and SBA lets them receive 2% more in interest if they will do the smaller loan. (The rate on a SBA Loan is, Prime + SBA Rate = Max Rate of Interest) The SBA Max Interest Rate on a loan $25,000 or less is 3.25% + 4.75% = 8%. Most banks do not realize they can charge this much for a small loan. The SBA Max Rate on a Loan of $25,001 to $50,000 is 3.25% + 3.25% = 6.5% for loans less than 7 years and 3.25% + 3.75% = 7% for loans more than 7 years. 

The Borrower will usually want to provide a Co-Signer to bolster the loan. Most Banks do not have Co-Signers anymore but they want Co-Makers. The difference is that a Co-Maker is actually on the Note and Loan, and the bank can make the Co-Maker uphold the Terms of the Loan just like they were the original Borrower because they are the Original Borrower. Banks can also get a Guarantee from another party but on the Co-Maker and the Guarantor they usually want some form of Collateral to Secure the Guarantee or to Secure the Note. People that sign on a Loan usually have a reluctance to Pledge Specific Collateral on the loan. Examples of Collateral that a Bank would want include their Home or Cash in an account or CD. Sometimes they will take an Automobile or Land or something else that has perceived value.

Banks Also look at people that can not come up with $5,000 to $25,000 as not as good a risk as people who have some wherewithal in their Income or Assets. I always find it funny that a Bank will tell the borrower to find someone else to finance the business for the first year or so, and then to come back to the bank for financing. Newsflash: Those Borrowers who have found, even part of the money on their own, are not coming back to the bank who turned them down! I have another Article on this blog on Non Bank Sources for Financing. 

Please also see my Website at www.schlueterfinancial.com for additional information including contact information. 

You have a Great Idea for a Retail Store. You believe that it will make you Boo-coo Bucks but you need a loan to Open the Store. You need Inventory and Working Capital to open the Store, and you decide to apply for a Commercial Business Loan to launch your business venture. One of the first things out of your Bankers mouth is, “did you do a Projected Income Statement?”.

The Projected Income Statement for a Retail Store is fairly easy if you have Good Sales Figures that are based on Realistic Assumptions and Based on Real Numbers of Some Sort. You Say, “What are Real Assumptions and Real Numbers?”. Well the best Assumptions and Real Numbers are just that, Sales Numbers that are based on a Real Store or the Numbers for Sales of Stores in that industry. You can assume you can sell to many people but the proof is in the pudding. The Best Way to get the Sales Numbers is to find a store in another market area that is not in competition with you and ask them what the Sales Numbers are and if there are any correlations, like Sales per Population or Sales per Type of Customer, Etc.

The Second Best Way to Find Real Numbers is to ask that businesses Association what are the Sales Numbers for a Store of your size in your area and if the Association knows of any Correlations in the Industry that can foretell Sales.

The Third Best Way to Find Real Numbers is to make them up but try to base the Projection on something you know, like the Population of a certain area, the Traffic Count on the road you are located on, or the number of professional people in an area that use your product. Sometimes these Correlations can mean something to the Banker if he believes the Correlation. 

The Sales figure is the hardest number in your Income Statement. The next number you need in your Income Statement is the Cost of Goods Sold. This number should be easy to get. It is the Cost of the Items you are going to sell. You  probably have a supplier that is providing you with these Items to sell at a wholesale cost so you can in turn sell the items at the Retail Price and make money after you deduct your expenses.

The Sales minus the Cost of Goods Sold or COGS is the Gross Profit. This is the number that has to be Big Enough to absorb you expenses and have some money left over for Profit so you can stay in business. 

The Expenses are your expenses of operating and running your business. These are your Rent or Mortgage Payment, Your Electric Cost, Your Insurance of the Inventory and Business Continuation Insurance, any Marketing Cost/Advertising Cost, Accounting and Legal, Supplies, Trash Pick up, and any other Expense of Running your Business. Do not include Depreciation because it is a non-cash charge).

Expenses can be the Real Expenses that you are going to have from the Vendors or you can look these numbers up on a Group that Aggregates the Financial Statements of Businesses in your Industry and Quotes them as Percentages. You just use the Percentage of Sales for your particular industry. This is of Course not as accurate as the real thing but is has worked for some business proposals. S&P has these numbers as well as RMA. 

Example:

Sales

= Gross Profit

-Rent

-Employee Wages

-Advertising and Marketing Expenses

-Electric and/or Gas

-Supplies

-Accounting and Legal 

= Net Income Before Taxes

What you have done is create an Income Statement that can also double as a Business Loan Bank Cash Flow Statement. The Bank is not as interested in the Income Statement as the bank is the Cash Flow Necessary to Pay Debt Service and Provide Capital for the Continuation of the Business. 

You can use this Format for many Businesses but remember most Service Businesses do not have a Cost of Goods Sold number.

Remember: what the bank is looking for is a Good Representation of the Real Financial Statement. He will usually want this Projected form for three years. The Increase from year to year is up to you but make sure to make it believable. A believable number is 5% to 20%, depending on your Assumptions and Knowledge of the Industry and the Market for your Product in the Future.

Please email me at roger@rogerschlueter.com if you have any questions or comments or go thru the Blog. My Website also has some Business Info you may use at schlueterfinancial.com  Thanks, Roger  

  

Credit Scoring for Business Loans by Banks can mean different things to different people. Some Banks just take the Personal Credit Score of the Owner and look at their Score on their Credit Report. This Credit Report gives a Credit Score on one of Three Credit Reporting Agencies. The three agencies do not report the same – Trans Union uses a system called Vantage Score and Evaluates scores between 501 (the worst) and 990 (the best). Esperian uses the Vantage Score also but the Equifax System uses the Equifax Credit Score which has a range of 280 (the worst) to 850 (the best). These three ranges came of the Reporting Agencies Web Sites on May 29, 2012. It still seems that if you have an above 700 score then you will qualify for most loans. The 600’s become murky because the cutoff used to be 630 pre 2008 but they have raised them to a cutoff of more like 670 to 680 in these more conservative times. 

The make things more confusing the banks can interpret these numbers anyway they see fit as long as they interpret them consistently to all borrowers. In Credit Scoring the bank may use these numbers only to tell them if they will extend you or your company credit. Some banks will create an elaborate system that will incorporate the Agency Credit Score but may have many more numbers that go into there proprietary score. This may give you a number for How Long You Have Been in Business, Your Debt to Equity Ratio, Current Ratio and Quick Ratio, and many other conditions that they feel will foretell the future of Business Borrowing. These conditions are then incorporated into the total score by any means they see fit as long as the consistently apply the Scoring Process to all borrowers in the same way. Most big banks use a Scoring System. You can look at it as a Box of Conditions and if you business fits into the Box, you will get your loan.  

In Short the Credit Scoring by the Financial Institution can be anything they want it to be and as long as they apply the Score consistently, they are fine with the regulators. Please remember the regulators don’t care if you get a loan, they only care about the bank and the risk levels of the bank, that they are examining. They care about the bank not the borrower.

Some entities like SBA seem to think that there is a value in getting a Credit Score on a business. These are pretty much worthless. The only valuable things that the Credit Score for the business will pick up are Bankruptcies, Judgements, and Tax Liens. This is because banks do not report a business loan to a credit agency unless the loan is to an individual.

I’m sorry is this seems confusing but it is confusing. There are no formal rules or processes for the lenders to run a formal Credit Scoring Process. The only constant in the Credit Scoring Process is the Individuals Credit Score from one or all of the three Credit Reporting Agencies, Trans Union, Esperian, and Equifax. 

Additional Info can be found on my website at www.schlueterfinancial.com and you can Email me at roger@rogerschlueter.com