The U.S. Small Business Administration is studying the use of credit scoring to speed approvals in its fast-growing loan programs.
The agency confirmed it is holding preliminary discussions with Fair, Isaac & Co. about using the company's soon-to-be-released released business credit scoring system to process applications under the SBA's Low-Documentation loan program.
"The idea would be that some percentage of low-doc applications would clear some credit-scoring hurdle, and the rest would get the human touch," said James Hammersley, deputy director in the SBA's office of financing. "But we have not made any kind of decision yet."
Any decision to use Fair Isaac's system, which the San Rafael, Calif., technology company jointly developed with the trade group Robert Morris Associates, could prompt many of the hundreds of SBA lenders to use it as well.
"We have been looking at the Fair Isaac system anyway, but if the SBA is going to use it we would probably do the same," said a senior banker at a West Coast institution.
"The key is to et your loans approved as quickly as possible and that would happen if we approve applications with the same system they would use."
For the SBA, the reasons for using credit scoring are similar to those of lenders: to cut approval times and reduce the cost of time-consuming credit analysis. So far, low-doc is the only program being considered for credit scoring.
Agency officials say that as the average loan size shrinks, the number of loans is likely to grow exponentially. One official said a credit scoring system would allow the SBA to quickly approve many loans, leaving only those rejected by the technology to be reviewed by credit analysts.
With Congress likely to frown on requests for new funds, the SBA is looking for ways to handle more applications without adding to its payroll.
The move to credit scoring could also further standardize the underwriting of SBA-backed loans. Latimer Asch, business manager of commercial products at Fair Isaac, said that standardizing criteria for accepting a loan would eliminate regional inconsistencies.
The SBA has talked with other companies offering credit scoring products.. Companies offering such services include TRW, Dun & Bradstreet, and CCN Groups MDS division.
Many small business lenders feel Fair Isaac has the lead in developing such technology. It worked with Robert Morris Associates to develop the Small Business Scoring Service announced in November.
The service is expected to be available in early 1995 and was designed with the input of some of the industry's better known business lenders.
Mr. Asch said Fair Isaac would likely draw upon this service for its first phase scorecard for the SBA, but would ultimately develop a scoring system based solely on SBA applicants.
