The nation's leading credit scoring firm is crafting a product designed to allow banks to offer preapproved credit to small businesses anywhere in the country.
The software, being developed by Fair, Isaac & Co., a statistical consulting firm, could dramatically change the marketing of small-business credit. In much the same way that creditworthy consumers are swamped with preapproved credit card offers, well-run small businesses could conceivably have their mail stuffed with offers of loans.
If the system works - and observers give it a very good chance - virtually any bank could do what only one, Wells Fargo & Co., can do now: solicit entrepreneurs from coast to coast and build a nationwide small- business portfolio.
For the past six months, Fair, Issac has been developing technology that banks could use to delve into gigantic data bases and pinpoint prospects and score the credit of prospective customers.
The product, yet to be formally tested, is expected to be available by the end of the year, said Latimer Asch, director of commercial products for Fair, Isaac.
"I see a substantial market out there," Mr. Asch said.
And industry observers agreed.
"It should quickly accelerate the competition in the market," said Les Dinkin, managing principal for NBW Consulting Group Inc., Westport, Conn.
"It's going to mean more pieces of direct mail for small businesses," said Darren Parslow, an associate for New York-based Financial Institutions Consulting. "Instead of one application, they're going to get five."
One small-business banker at a major California bank expressed interest in the concept.
"I would be certainly receptive to knowing more about it," said Donald W. Hance, head of small-business services at Union Bank, Los Angeles. "It's certainly a long-term plan at Union to identify potential borrowers and preapprove them."
For the past year, Fair, Isaac has offered a credit-scoring system that evaluates loan applications. Through statistical modeling, credit scoring uses credit applications and credit bureau reports to rate a borrower's ability to repay.
The new product builds on this system, Mr. Asch said. It would allow banks to sort through lists of outside data bases - such as those generated by Dun and Bradstreet - apply credit scoring processes to different business and personal financial reports, and determine the entrepreneur's creditworthiness even if they haven't applied for a loan.
Mr. Asch said Fair, Isaac would provide consulting services on how to select targets and types of offers to make. Selected banks will test the product in the third quarter.
Mr. Asch said he suspects the product will appeal to the bigger banks. "I see it being used by the large and middle-market players that want to have a national portfolio."
The product is being worked on just as many banks are trying to find ways to gain small-business market share.
Many banks still are spooked by Wells, which shocked lenders last year by reaching businesses with direct-mail solicitations for lines of credit, choosing targets through a system the San Francisco-based bank developed itself.
Wells' move provided a wake-up call to the industry that no market was safe, and other banks began trying to follow its lead to protect their customers and find new ones.