Ask your average banker about lending to small business and praise of the sector will flow from his mouth like honey. Ask him to define small business and figures like $100 million in sales will escape into the ether, the high cutoff point attributed to credit quality.

The reason? Objective standards for measuring credit risk in loans to real small businesses-those with fewer than 100 employees and scant millions in annual sales-have been scarce. The result: Loans with wider spreads, virtually guaranteeing fewer businesses that can afford them.

This is a shame, since most businesses fall into this latter category. All the more reason why this year's deal between San Raphael, CA- based Fair, Isaac & Co. and Experian-in the United States, the former TRW Information Systems and CCN Group-is so important to banks. By creating a means of gauging the creditworthiness of a real small business-and a real small business person, if the business is new or very small-green fields of loan opportunities that formerly were largely the preserve of specialized, nonbank lenders open up to banks.

Best of all, by combining the data analysis capabilities of Fair, Isaac and the data banks of Experian, these loan applications can not only be credit scored objectively,meaning easier passage through the credit committee and lower default rates during a down business cycle, but they also stand the stress of a direct marketing campaign. Generally speaking, trolling for loans in this market without tools like this would be a virtual guarantee of high default rates, not to mention unemployment for some bankers. This is precisely why many bankers only feel comfortable pursuing the upper echelon of small businesses, a somewhat self-defeating market strategy. "This is a tool for (loan) prospecting," says Latimer Asch, vp of San Raphael-based Fair, Isaac & Co. "Experian provides the data and fulfillment, and we provide the score-based algorithm." A.Reinbach

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