If you thought it was complex dealing with FICO in the consumer arena, be prepared for more confusion. The schizophrenic world of business lending is so obtuse, you wonder how banks and business owners ever get together.

If you have credit and can get more with a simple phone call or application, you may not place much value on it. That is the case for possibly 30-40% of the consumer population and possibly 25% of the business population. Do these figures sound a little low? 25% of business owners take credit for granted. The reason for such low numbers is not about the willingness of lenders to extend credit on a personal and business basis. It's that a large percentage of our population has allowed their credit to become messy.

You will not gain credit fitness by being lackadaisical about your FICO than you will gain physical fitness by going to the gym once a month. Excellence takes effort, a strategic mindset and tactics to garner high scores and solid rates.

When you need credit and there is none, your business can die. Recessions, unemployment, inflation, rate increases and domestic trials can hammer the economy. Most people do not have a safety net. Do you?

CREDIT REPORTING AGENCIES

Here are the most common sources of credit reports on your business:

Dun and Bradstreet is a respected credit reporting gency started in the 19th Century. It has files on tens of millions of businesses worldwide. Some consider its accuracy as the standard by which they grant credit. Others give it only a passing review, if that at all. The reason many lenders do not use this source is the question of its accuracy and relevance to the credit decision for the typical small business. As a credit analyst for D&B for 5 years, I can attest to those two opinions. At best, it is one source of credit information and generally useful for public data.

TRW/Esperion Business Credit Reports. TRW was investing in business reports as early as 1975. They made a good gain into quantity of information, but quality was questioned at times. It appears they did not put their full effort to the task so they were not used frequently or for the full review of business credit worthiness.

By default, most lenders and creditors use the consumer credit report like Esperion, Equifax and Transunion. Buy why would a business lender use these agencies? Because they are as good a tool for the spotting of business credit as personal credit profiles. Nearly every bank and other traditional lenders will use your consumer credit report for several good and just reasons.

First, your credit habits as a consumer are more revealing than your business credit habits. How you handle your personal credit is more revealing than business credit. If you are slow to pay your business vendors and suppliers, you will be cut off, put on C.O.D. or placed for collection. That will kill your business as quickly as a shutoff of oxygen. So most business people will maintain at least `average relations' with their suppliers. They may be slow, but not critically so.

On the other hand, that borrower knows they can easily slide on personal credit cards, auto and home loans by 1-2 months and get little more than a nasty phone call or pink, slow-pay envelope.

It is amazing how bad the consumer credit rating can be when a business credit rating is acceptable. The nature of slow pay on a personal and business basis is often a matter of character or a function of inadequate cash flow and over-extension of debt. Since there is no easy answer to these complex matters of analyzing the consumer reports in light of credit habits, debt loan and cash flow, some lenders simply decline business credit requests if the FICO is as low as 670. Some decline loans at 620.

However, your FICO may or may not drive a lender decision. Many components of the credit report, including your FICO score, will have important bearings on your loan possibilities. Let's examine some situations that might come to light in a typical business application.

CREDIT REPORT CONNECTION

Assume you are in business and want to apply for a typical SBA loan for capital, equipment or real estate. The first thing a lender will do is call up your personal credit report. It is then the template against which all other decisions are made. If your FICO is over 700 and you have excellent cash flow, you can probably borrow as much money as you need within your cash flow capacities. There are times, however, when a borrower has perfect credit and with a FICO of 700 plus and gets categorically declined. They may have great credit but are running at a loss. Their personal and company negative cash flow is subsidized by another income, like a spouse, or they have been working off a large cash savings balance, funding the losses in the business. This is not uncommon in new businesses or those with an inferior business model. They are a business failure waiting to happen. The only question is `when'.

These are not common, but if you find yourself in a situation like this, do not be surprised if you are turned down regularly. To be blunt, you would have to do some fancy `tap dancing' around this losing proposition to convince a banker to fund your company.

Much more common is the FICO score under 700. There is good news here, however. It is much easier in business credit circles to work around low FICO scores when you have a good business model, the credit issues that affected your score are old or you have good explanations to present situations. A banker is quite amenable to a good story.

Every business has had to fight its cash flow battles, for better or worse, and those in business today are survivors. In the meantime, as a start up you have to deal with the lender's perception of your credit report. And like most, you may have a few dings and dents, both current and in the past. First, find a lender sympathetic to your story. They are around, but it's 50/50 that they will be a big bank. Larger banks have so many applications, that they just have to draw the line somewhere. If you are outside their `credit culture' box, you will be declined.

This is not a cold, heartless decision. It's practical business for a bank. Bankers have one product to sell ... money. If they don't sell this product, they are out of business. The unique thing about banks is they are one of the few products available in the marketplace that you may not be able to buy. You can easily buy a stereo, computer, car or clothes pretty much anywhere. If you have money, the sale is made. Banks, though, can refuse to sell you their product. And their refusal is not commonly challengeable. You are approved or not ... period. Of course, sometimes they may sell you less than you asked for. It's like asking for size 10 shoes and having the clerk tell you they will only sell you a size 7. That is not workable ... as far as your feet are concerned.

Sometimes a banker will provide you with a loan of $25,000 when you need $100,000. Sometimes you will take it, not understanding why you were not given the full amount and not realizing you may have been able to get the entire $100,000. If you think wearing size 7 shoes on size 10 feet is uncomfortable, then try building your business when it's undercapitalized. One of the chief reasons for business failure is lack of money.

You may wonder why you were turned down, approved for a smaller and inadequate loan or fully approved. Since most credit decisions are conditioned on your report and most lenders go to your consumer report, then this would be the most likely starting point.

But what do you do if your report isn't spotless? Don't worry, your credit report is fixable to a certain degree. In the case of a business loan, you may not have the luxury of waiting for the repairs to take place. If you need business credit, it has a real sense of urgency. Business opportunities are mercurial and your business may not see this chance again, ever.

How to handle this? Make sure you know your report in detail. Don't wait until the last minute and hope it turns out that your report has been cured of problems. Credit reports don't repair themselves. Derogatory information stays on your reports for years. Launder the reports and correct the deficiencies. What you can't correct within a month or so, you must explain in detail.

Here is a secret that no banker will ever tell you. A good banker is a good person to begin with. They want to make your loan and they do want to believe you when you say you will repay them - so tell them why your report has problems and why you are still a good risk. Lending is one of the purest forms of believing in another person. It is an act of faith and trust. But, just as any act of this type is predicated on the good will of the borrower and lender, they will still do their due diligence. It's part of their job.

If your FICO is in the low 600's or high 500's, it is very possible that if you have the other elements of the loan application well in hand; the credit report then becomes your chance to explain the story to the bank. If you had late payments in the past and can show you are now current, that is a good thing. If your late payments are recent but you have closed the lines and reduced your debts, that can be viewed as good character. You recognized your problems and solved them while learning a valuable lesson.

If you had an old bankruptcy, 3-15 years ago, give a detailed explanation and what you drew from this profound credit experience. Most people who weathered a bankruptcy come out the other side a changed person when they are in business. If you suffered a divorce and you or your spouse created a TRW like a `train wreck', this can be viewed as a one-time event.

Likewise, if you suffered an extended job loss, a bout of ill health of you or a family member, or some other traumatic experience, you will find some lenders quite understanding. Many lenders have families and have seen the devastation of these crises first hand. They are not immune to a good story.

Bankers have a view of the world that circumscribes personal and company environments. They have heard lies and half-truths from every quarter, every day. Regretfully, this arena is filled with people who would lie when the truth works better. An honest and forthright accounting of all the matters in your application, be they good, bad or neutral, will get you a better audience and a quicker, more honest answer than all the 'B.S.' in town.

You may not like the answer. It may be `no'. But what you will earn is the banker's respect. The chances are very good that if you impress the banker with your candor, they will go out of their way to refer you to a lender who will give you the full and objective review you want.

After having provided over $750,000,000 in all types of business and SBA loans since 1981, we can attest to this last statement. If the credit request is worth pursuing, it is worth pursuing well and to its fullest completion. Somewhere out there is a lender who will work with you.