WASHINGTON (12/15/14)--The U.S. Small Business Administration (SBA) has started using a new credit-scoring tool aimed at making small-dollar loans easier and more cost effective for lenders.
FICO's Small Business Scoring Service is generally used to assess the risk of small business credit applicants.
The tool uses a "dynamic and predictive" scoring system for applicants according to the SBA, intended to automate a primary piece of the SBA's required credit analysis. The agency has tested it extensively, and it is now applicable to all 7(a) loans--the SBA's most common loan program--of $350,000 or less.
According to the agency, the tool will streamline the underwriting process, while making it more objective, which should ensure more consistent credit decisions. Decisions on credit will also come faster, due to the automated process reducing reliance on a cash-flow analysis.
The SBA has been reaching out to the credit union community in recent months. A partnership between the SBA and the National Credit Union Administration is in the works, and SBA Administrator Maria Contreras-Sweet met with Credit Union National Association President/CEO Jim Nussle earlier this month.
The agency guarantees portions of loans, usually 50% to 90% administered through lenders, and the guaranteed portion of those loans do not count against a credit union's member business lending cap.
Credit unions have been taking increasing advantage of SBA loans, with both average size and total dollar amount of loans up by nearly 50% over the past 2 1/2 years.
CUNA plans to follow up with its meeting with Contreras-Sweet by helping connect interested credit unions with the SBA and looking for ways to help credit unions already participating in SBA programs to increase their lending.
In early 2015 the agency is expected to institute SBA One, a Web-based application and loan management process to allow greater efficiency when it comes to uploading documents, generating forms and using electronic signatures.