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Score Savvy

Business credit scores are on the horizon. Could your personal credit history hurt you?

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This story appears in the October 2003 issue of Entrepreneur. Subscribe »

By next summer, small businesses should have credit scores similar to those already assigned to most consumers. Lenders will use the scores to size up the credit-worthiness of small businesses that apply for loans. That's good news for those whose credit histories can be easily summarized in a single number, but it won't make the loan process any easier for businesses whose credit histories are more complicated than plain vanilla. In April, the SBA announced it had hired two giant credit information companies--D&B and Fair Isaac--to build credit models based on the SBA's enormous portfolio of guaranteed loans. The scores will operate the same way as consumer scores: the lower the score, the higher the interest rate.

The resulting model, which is supposed to be completed this fall, will be used to create generic credit scoring templates that can be used to sort loan applicants into three piles: automatic "yes," automatic "no" and "maybe--get more information." Jonathan A. Scott, an associate professor of finance at the Fox School of Business at Temple University in Philadelphia, says borrowers whose credit histories need explaining will still have to cultivate the goodwill of their lenders and draw on those relationships to seal the deal.

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