Bank Rating, FICO SBSS

Your business has what is commonly called a bank rating. Lenders use your business bank rating to determine if your business has the ability to debt service. Your bank rating is the average daily balance of your general ledger account over the last three-month statement periods.

Your bank rating has two components.

• The first, being the terms; Low or “L”, Medium or “M” and High or “H” “Low” means that your account average daily balance for the past three months started with a 1, 2 or a 3. Accordingly, Medium means your account average daily balance started with a 4, 5 or 6 and High the account started with a 7, 8 or 9.
• The second, is a number value such as; 3, 4, 5, 6 or 7. This is an indication of the number of digits that your account average daily balance for the prior three months consisted of such as, “4” would indicate four digits or $x,xxx. Therefore, a bank rating on M4 would indicate that for the last three months your average daily bank balance in your business general ledger checking account was $4,000, $5,000 or $6,000.

Most lenders never want your total debt monthly payment obligations to exceed 35% of your available cash working capital. Therefore, if your current debt was nothing ($0) and your bank rating was a M4 most lenders will default to 35% of the lower indicated value or $4,000 and allot 35% of that as your maximum payment availability for servicing debt or roughly $1,400 a month for the max payment amount.

So, what happens if your business has a “Low 3”?

This would indicate that your average daily business bank account balance for the last three months was only $100, $200, or $300. To lenders that indicates that your business has no ability to debt service and therefore your loan applications will be declined. At this point anything your business is approved for will most likely be based solely upon the personal credit and personal financial condition of the business owners and not on the business itself.

Therefore, creating and maintaining at least a “Low 5” bank rating is vital to your business getting approved for business loans and to the ultimate goal of your business becoming bankable. Creating a “Low 5” bank rating requires that you never allow the business general ledger bank account to drop below ten thousand dollars ($10,000) for even one day. Consider this the floor for your business bank account. Borrow the money personally if you have to and loan it to your business until such time as your business is able to support maintaining that $10,000 as the floor of your business general ledger checking account.

You might even consider borrowing the $10,000 from friends or family by letting them know that you will not be using the money, but instead it will be used only as a floor in your business bank account to help you create a Low 5 and explain what that means. You could assure them that if you are unable to obtain a business loan within six months that you will simply return their money. Maybe offer to pay an above going rate of interest. There are other ways to get the needed $10,000, such as credit union loans, cash out credit cards, using personal assets and more.

Your business bank rating is going to be a major factor in your business FICO Small Business Scoring System (FICO SBSS). This scoring system is now used extensively by banks, credit unions, the SBA and many other lenders. Your business needs to develop a FICO SBSS of at least 160 as part of the goal to become bankable and have the ability to get approved for much larger loans at lower interest rates and longer repayment periods. Your business bank rating along with a few other financial factors can make up as much as thirty percent (30%) of your business FICO SBSS.