One of the more interesting (and complex) things I’m often asked is “what type of credit criteria is used in an equipment loan decision?”
Honestly, B2B credit criteria can be complex because the answer is extremely varied, and depends on the business type, time in business, the company’s credit history (e.g., how much credit is in the business name itself), and more.
There is no one source or definitive answer – depending on the company, we (and other B2B lenders) may look at a combination of any and all of the following: The “big 3” credit reporting bureaus (Equifax, Experian, TransUnion), Secretary of State databases, D&B (Dun and Bradstreet), LexisNexis, Thomson Reuters, Paynet, and others.
Within these, there are a host of different types of scores that can come into play. To give an example, each of the Big 3 bureaus maintains business data and issues their own version of a business credit score; D&B has a Rating, Paydex score, Delinquency Predictor Score, Financial Stress / Failure Score, Supplier Evaluation risk rating, etc. And in the absence of a solid credit history in the company name, the principal’s personal credit scores will get an increased look.
See why this is a complex topic? It’s not as easy as getting a FICO score and thinking that’s the number. Far from it.
Oh, regarding FICO, I need to clarify that there is no one FICO score either (this is a common misconception). There are actually many.
FICO scores are a component of various data supplied by the “big 3” bureaus, and
is based on algorithms developed by the Fair Isaac Corporation (hence FICO). The tricky part is various versions of FICO exist because Fair Isaac customizes its calculation methods individually for each of the 3 bureaus (which may be further separated via specific data), each bureau modifies the score based on its own workings and individual customer, etc… again, there is no one score to rule them all.
The bottom line is a LOT of data from many sources is used to evaluate credit history for B2B lending. There’s way more to it than meets the eye.
And you thought I just wrote blogs all day!