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The Advantages of the Small Business Adimistration (SBA) 7A and 504 Loan Programs

With the advent of the “Small Business Jobs Act of 2010”, the most significant piece of small business legislation in over a decade. The new law is providing critical resources to help small businesses continue to drive economic recovery and create jobs.

The Law permanently increased 7A and 504 Limits from $2 million to $5 million (for manufacturers in 504 loan program, up to $5.5 million). For the New York Metropolitan Area, this increase was important based on increase cost and asset values that correspond to our regional area. With banks concentrating on increasing capital and reducing loan exposure since 2008, the Small Business Administration Loan Programs virtually became the only game in town for most small businesses.

Each program has its advantages and disadvantages for a borrower. The following is a recap of those programs.


This is the most common SBA loan program. Through participating lenders or directly from the SBA, a loan is granted for the purpose of purchasing fixed assets, working capital or to finance start-ups or the purchase of an existing business, additionally, some debt payment is allowed. 10% borrower equity is required for the loan. This is a tremendous advantage in today’s marketplace where 25-30% equity is required by banks for conventional business loans or mortgages.

As a participating lender (Bank) they receive a 75% loan guarantee from the federal government. What that means if a loan is made for $1 million dollars and the borrower defaults for non-payment, the bank can “put” the loan back to the federal government and receive payment of $750,000 on the $1 million dollar loan. As liquidation is made of the loan collateral the government will receive 75 cents on the dollar with the bank receiving 25 cents on the dollar.

For a bank it mitigates having a million dollar loan on your books as a non-performing loan and reduces the balance to $250,000. With the scrutiny of bank regulators, this becomes an important tool in managing the bank’s balance sheet and loan loss reserves.

This SBA loan program interest rate has a floating loan rate tied to the “Prime Rate”. The maximum rate is Prime Rate + 2 ¼% for loans maturing in 10 years or less, and Prime Rate + 2 ¾% for loans maturing in 25 years. Most Banks price at the maximum interest rate and rates adjusted monthly with the increase/decrease of the Prime Rate. Today’s Prime Rate is 3.25% so a loan maturing in 25 years, the starting rate would be 6.0%.

This loan has a prepayment penalty of 5% for the 1st year, 3% for the 2nd year and 1% for the 3rd year. There is no prepayment penalty after the 3rd year. With the Federal Reserve Bank stating recently that they see no increases in short term rates until 2014 this program disadvantage of being tied to a floating rate, with rates currently at historic lows, gives an opportunity to borrow at the lower rate and refinance in the future once the prepayment penalty period expires. Of course, as seen over the last 3 years, there are no guarantees of where rates will go in the future, and at historic low rates, there is probably only one way they will go——-up.

Banks favor this type of loan not only for the federal government’s 75% guarantee, but also because they can sell the guarantee portion of the loan into the secondary market.

Having a 75% government guarantee makes the guaranteed portion act like a government bond. Additionally, this guarantee has a floating rate variable, thereby eliminating interest rate risk to the investor. Having a government investment with no interest rate risk is highly sought by pension funds, hedge funds and other investors who seek low risk investments. Currently, these investors will pay 10 to 15 points over par to purchase this investment. What this means that if a bank makes a $1 million dollar loan to a business, they can sell the $750,000 guaranteed portion for a profit of $75,000-$112,500 dollars. That is a substantial profit for any bank to turn down while still receiving loan servicing income going forward and reducing its future funding cost.


This program is utilized strictly for real estate and/or fixed asset acquisition or renovations/improvements to existing real estate asset. On March 29, 2011 the SBA approved utilization of this loan program to refinance existing bank loans that will mature after 12/31/12 where interest rates are high, and based on the current real estate market, the original value of the property has been dramatically reduced to where the originating bank may not be able to refinance the existing mortgage at time of balloon maturity.

It is important to note that this program will expire on September 27, 2012 unless extended prior to that date by the federal government.

How this program works is based on the loan structure. A bank will lend 50% of the loan in the first mortgage position, the SBA through a Certified Development Company (CDC) will lend 40% in the second mortgage position, with the borrower to support the remaining 10% in the form of cash equity or asset valuation.

The bank portion (50%) is lent on a conventional commercial mortgage basis with a fixed rate based on market conditions fixed for 5 years, reset to a designated rate indices for the next five years, with a balloon maturity at the 10th year. Most loans are granted based on a 20-25 year amortization. Current rates are ranging between 4.50%-6.50% based on strength of borrower and industry.

The CDC portion (40%) rate is based on their borrowing from the federal government usually set to the 10 year Treasury Rate with a 20 year maturity/amortization. What this affords the borrower is a low fixed rate loan with a straight 20 year maturity with no balloon payment. Current rates are ranging between 4.50%-5.00%. Under the refinancing program, the rate will increase to 6.50%.

The prepayment penalty for the bank is usually a 5-4-3-2-1 prepayment penalty for the first 5 years and sometimes it resets again for the remaining 5 year term until the 10th year maturity. For the CDC portion, it is more restricting. The prepayment penalty is for 10 years at a 10-9-8-7-6-5-4-3-2-1. This makes any repayment over the first 10 years very expensive, but the loan can be assumed by the buyer, subject to the CDC approval, which can be very attractive sale feature for the seller based on the interest rate and providing approved secondary financing. For someone who is thinking of selling within the next 5 years, this might not be the program for you and should be address prior to application.

For the bank, the advantage is having a more established borrower with a 50% Loan to value ratio, which is considered a lower risk loan, although it does not afford the bank a 75% government guarantee and the liquidity of a 7A loan provides if the loan becomes non-performing. The bank also gives up the substantial premium it would receive in the secondary market. There is a secondary market for these loans, but the premium is about 3 points above par and most banks originate these loans for portfolio and not resale. The initial risk in the transaction is providing the “bridge” financing in the loan. What this means is the bank fully funds both portions of the loan at time of closing until the CDC raises the funds through a bond sale to fund its portion. This can take as little as 30 days after closing up to 6 months, depending on the market and CDC funding requirements. The risk is providing 90% financing with the risk of future funding by the CDC due to adverse changes to the borrower or market conditions prior to funding.

Any bank can participate in this program, versus the 7A program where a “Preferred Lender Status” dominates that marketplace. A Preferred Lender Status gives the government approval to the bank, without submitting the loan for approval directly to the SBA, as longs as it meets all SBA guidelines. This eliminates the time factor in the approval process, but a Preferred Lender Status is only granted to banks that originate a number of loans over time to expedite the process going forward and is not granted to a new banks in the program until sufficient volume and time has been generated.

For the borrower it eliminates the interest rate risk by having a fix rate loan versus a floating rate loan under the 7A program with the CDC portion fixed for 20 years with no balloon maturity. Like the 7A program, only 10% equity is required by the borrower versus current conventional bank loans requiring 25-30% equity. The disadvantage is the lengthy prepayment penalty on the CDC financing.


Since the financial meltdown in 2008, both SBA programs have been a valuable loan vehicle for small businesses. The choice of programs should be tailored to your need and ability. Based on the realities of today’s marketplace, start-ups without the benefit of historical financial statements or businesses with insufficient cash flow or principals with limited experience, resources and income/assets are still very difficult to obtain financing, if not impossible. Banks and the government will not make SBA loans if they perceive the risk is too great in today’s marketplace. But for the business person that demonstrates the necessary ability, these programs are a positive weapon to grow your business.

Five Common Strategy Mistakes

Joan Magretta

Joan Magretta is a senior associate at the Institute for Strategy and Competitiveness at Harvard Business School. She is the author of What Management Is
and the forthcoming Understanding Michael Porter: The Essential Guide to Competition and Strategy.

Five Common Strategy Mistakes
by Joan Magretta

I just finished a two-year project looking at Michael Porter’s most important insights for managers. Connecting the dots between his classic frameworks (the five forces, for example) and his latest thinking (the five tests of strategy) gave me a new understanding of the most common mistakes that can derail a company’s strategy. In a previous post, I focused on the fallacy of competing to be the best. Here are five more traps I’ve seen managers fall into over and over again. Understanding Porter’s strategy fundamentals will help you to avoid them.

Mistake #1. Confusing marketing with strategy.

Correction: A value proposition isn’t the same thing as a strategy. If you’re trying to describe a strategy, the value proposition is a natural place to begin — it’s intuitive to think of strategy in terms of the mix of benefits aimed at meeting customers’ needs. But as important as it is to have insight into customers’ needs, don’t confuse marketing with strategy. What the marketing-only approach misses is that a robust strategy also requires a tailored value chain, a unique configuration of activities that best delivers that kind of value. This element of strategy is not at all intuitive, but it’s absolutely essential. If you perform the same activities as everyone else, in the same ways, how can you expect to achieve better performance? To establish a competitive advantage, a company must deliver its distinctive value through a distinctive value chain. It must perform different activities than rivals or perform similar activities in different ways.

Mistake #2. Confusing competitive advantage with “what you’re good at.”

Correction: Building on strength is a good thing, but when it comes to strategy, companies are too often inward looking and therefore likely to overestimate their strengths. You might perceive customer service as a strong area. So that becomes the “strength” on which you attempt to build a strategy. But a real strength for strategy purposes has to be something the company can do better than any of its rivals. And “better” because you are choosing to meet different needs and performing different activities than they perform, because you’ve chosen a different configuration for your value chain than they have.

Mistake #3: Pursuing size above all else, because if you’re the biggest, you’ll be more profitable.

Correction: There is at least a grain of truth in this thinking, which is precisely what makes it so dangerous. But before you assume that bigger is always better, it is critical to run the numbers for your business. Too often the goal is chosen because it sounds good, whether or not the economics of the business support the logic. In industry after industry, Porter notes that economies of scale are exhausted at a relatively small share of industry sales. There is no systematic evidence that indicates that industry leaders are the most profitable or successful firms. To cite one notorious example, General Motors was the world’s largest car company for a period of decades, a fact that didn’t prevent its descent into bankruptcy. To the extent that size mattered at all, it might be more accurate to say that GM was too big to succeed. Meanwhile, BMW, small by industry standards, has a history of superior returns. Over the past decade (2000-2009), its average return on invested capital was 50 percent higher than the industry average. Companies only have to be “big enough,” which rarely means they have to dominate. Often “big enough” is just 10 percent of the market.

Mistake #4. Thinking that “growth” or “reaching $1 billion in revenue” is a strategy.

Correction: Don’t confuse strategy with actions (grow, acquire, divest, etc.) or with goals (reach X billion in sales, Y share of market). Porter’s definition: the set of integrated choices that define how you will achieve superior performance in the face of competition. It’s not the goal (e.g., be number one or reach $1 billion in top-line revenue), nor is it a specific action (e.g., make acquisitions). It’s the positioning you choose that will result in achieving the goal; the actions are the path you take to realize the positioning. Moreover, when Porter defines strategy, he is really talking about what constitutes a good strategy — one that will result in a higher ROIC than the industry average. The real problem here is that you will think you have a strategy when you don’t.

Mistake #5. Focusing on high-growth markets, because that’s where the money is.

Correction: Managers often mistakenly assume that a high-growth industry will be an attractive one. Wrong. Growth is no guarantee that the industry will be profitable. For example, growth might put suppliers in the driver’s seat, driving up the industry’s costs and limiting profitability. Or, combined with low entry barriers, growth might attract new rivals, thereby increasing competition and driving prices down. Growth alone says nothing about the power of customers or the availability of substitutes, both of which would dampen profitability. The untested assumption that a fast-growing industry is a “good” industry, Porter warns, often leads to bad strategy decisions.

These mistakes are both common and costly. Getting smarter about how competition works and what strategy is will save you from making them.

Macro Versus Micro: A Business Life’s Lessons

Macro is from the Greek prefix “makros”, meaning large. Micro is from the Greek prefix “micro”, meaning small. In the context of this article it applies to how National/Global events (macroeconomics) can affect your local business (microeconomics).

For the small business owner, these lessons have been front and center since 2008 with the sub-prime mortgage bust and collapse of Lehman Brothers. Currently, the debt-ceiling debacle in July 2011, with the subsequent downgrade of the United States Debt and now, the dealings with Sovereign Debt issues in Europe and the Euro Zone. In short you can do everything right for your business, but sometimes events outside your control could seriously threaten or outright destroy your business and all that you have worked for to succeed.

My first foray into this economic tsunami was in the late 80’s, early 90’s. I was Senior Vice President and Senior Loan Officer at a Northern New Jersey Bank. This was the age of deregulation in banking with banks on full throttle for all types of loans. Construction loans for residential homes, condos, townhouses and also commercial properties such as office buildings, shopping centers and strip malls was the way banks got loans on their books and fee income to their bottom line. Banks also went into “Joint Venture” lending with builders and developers in a way to profit from the sale of the real estate on top of the loan income. Everyone saw the upside, but no one looked for the downside————-until it was too late. Sound Familiar?

Like other banks, our bank at that time wanted to do more Construction Loans and was very interested in forming Joint Ventures with builders. I on the other hand was extremely hesitant to move forward on this type of business for two reasons:

1.) When I saw that sub-contractors were becoming contractors; contractors were becoming builders; and builders were becoming developers, it seemed that anyone could make money in this market, and;

2.) I truly did not understand all the nuances to this type of lending and was uncomfortable putting a lot of loans on the books that I did not fully understand.

We did not do a lot of these loans because I didn’t fully feel comfortable with the source of repayment and the share amount of loan request we received from potential borrowers. A few years latter, when all these types of loans went sour because of more supply than demand (macroeconomics). Back in the early 90’s banks were failing left and right. Over 8,000 banks were closed from 1988-1995. Our bank was not one of them and during that time we benefited from the banking malaise by obtaining new customers from those failed banks and purchasing banks and assets from the government at incredible discounts to book.

One night during that time I was walking out of the bank and it hit me. There are over 200 employees at the bank and the decision we made in the past, and will make in the future affect each employee of the bank and ultimately their family. The simple weight of that thought stays with me today. Mind you, our bank survived and flourished, but like all the banks that failed, we were doing our jobs to the best of our ability, but outside events created a situation in banking that was the catalyst to the abyss.

So what does this have to do with your business? Those experiences have been life lessons that I employ today. In no particular order, they are:


Your business is not just about your specific industry, region or local issues. Over the last 20 years national/global events can and will affect your business. The sub-prime meltdown in 2008 and the regulation that occurred in banking now make it extremely difficult to obtain a business loan. Why? Because banks suffer from “herd mentality”. They rushed to make all types of loans, and when the market crashed, they “threw the baby out with the bathwater”. Although the belief was that it happen out of the blue, the reality was that by early 2008 and even years before, all the signs pointed to its tragic conclusion. Better understanding of those events by way of reading the papers, periodicals and keeping abreast of current trends forecasted those events long before the day of reckoning.

Additionally, keep up with technology. Yes its easy to say I’m too old for what happening today, or I don’t want to understand what that younger generation is doing or I can hire a person to do that. But it is important for you, not only to understand but participate in the process. Economic events are being communicated within nano-seconds with actions and reactions swift and violent. Your ability to react is now limited to your clock and not your calendar.


Sounds simple? But greed is still one of the “Seven Deadly Sins”. No potential borrower that ever walked into our bank and presented their loan request and business plan said “I’m not sure this is going to work, but I thought I should borrow the money anyway and give it a try”. All came in convinced they would succeed and make in fortune, but just the law of averages will tell you that’s not true. If you are not sure, or “your gut” is telling you not to do it———–Don’t.


There are two ways to treat your business. Like a mistress or like a son/daughter.

If you treat your business like a mistress, you know you are doing something wrong, but you don’t care. You justify your decisions by desire, spending money you don’t have, and doing things you do not want other people to know. You are thinking short-term knowing you are risking everything for an immediate gain. Most of the time it ends badly affecting not only your life, but the lives of the people that work for your business.

If you treat your business like a son/daughter you nurture it over time, knowing before it can walk; it needs to crawl and so on. You create cash reserves for rainy days when times are good and manage for the long-term and its success. You invest your time wisely giving more than you are taking. Ultimately your plan for your business, like your relationship with your son/daughter, is that it will be taking care of you when it is time to retire.

So who are you?


When a situation presents itself as a threat to you or your business how do you react? Of course your first reaction is displeasure and why did this happen to me. That’s being human. But before you hit the panic button, step back and reevaluate the threat. What can you do to diffuse it and turn it into an opportunity? I have seen this countless of times with upset customers or clients. Ninety-Nine percent of the time they want to be heard and treated fairly. They don’t want to hear excuses or “it’s the policy”, but to feel you understand their situation, apologize and solve their issue. In times like that I looked forward to work with those people, because I knew I would not only solve their problem, I would enviable sell them an additional service or product.

Same is true when presented with an opportunity. Step back and reevaluate the opportunity. How many times have you seen on the news or read in the paper about the person or business who thought it was a terrific opportunity and never thought it would turn out they way it did. More times than we can all remember.

Why? Because of greed. We see all the upside, but none of the downside. One of the hardest things to do as a person or businessman is to walk away. There are two sayings I will always remember that my father told me;

“If it’s too good to be true, it probably is”, and;

“The road to hell is paved with good intentions”

Outside events in the world of instant information affect all our lives and business for better or worse. I, for one, chose better.

Real Estate Appraisals of Restaurants

I have been involved with a number of restaurant acquisitions and refinances over the years and one of the most frustrating events in those transactions is when the banks do their appraisals. I have seen similar restaurant appraisals for properties located in the same area, within close timeframes of each other, vary by over $125 per square foot. Why does this occur?

An appraisal is not an exact science. It is a set of assumptions based on previous sales and rental information found by the appraiser and appraisal company at a certain point in time. Therefore, an appraisal is the value estimated at the date of the appraisal. Also, appraisals are a laggard in estimating value. What does that mean?

Real estate appraisals must utilize previous sales or executed leases with a third party landlord (not your own real estate holding company) within the last six months to one year. Therefore, in a rapidly rising or falling real estate market, the information can be misleading.

But the biggest impact to the value of land & building in a real estate appraisal is the allocation of price in a contract of sale in a viable, operating restaurant on prior sales that are utilized in the appraisals as “comparable sales”. I say “viable and operating” versus a bank foreclosure sale, which will always have a negative impact on any appraisal for any form of real estate. The allocation of price on the sale of a restaurant is broken down into 1.) Land & Building, 2.) Fixed Assets, 3.) Goodwill. Goodwill is the asset category that includes the value of the liquor license and/or business sales.

In the State of New Jersey there is a “real estate millionaire’s tax” for any sales that exceeds $1,000,000. The tax is 10% of the sales price; therefore a sale of $1,000,000 will cost the seller $10,000 in state tax at time of closing. Most sellers want to limit their tax exposures i.e. allocate a lower amount on the sale of real estate.

In an effort to limit tax implications from the sale of real estate, a Seller and Buyer speak with their accountants and attorneys prior to executing a contract of sale. The agreement of the total purchase price of the real estate, fixed assets and goodwill need to be properly defined and allocated prior to closing.

I have seen a number of appraisals where the comparable property used in that appraisal has an allocated sales price of $999,000. That is a red flag when I am reviewing an appraisal. I have had many a discussions with appraisers concerning that event and in some cases appraisers will adjust the value when reconciling all their comparables. This also occurs with sales recorded over $1,000,000. Remember every $100,000 is an additional $1,000 in taxes owed.

When the economy was very good (circa 2007) I saw appraisals at $300-$500 per square foot. I now see appraisals at $150-$350 per square foot. When reviewing an appraisal, I do not only look at the overall value of the property, but what the value is per square foot. That is the commonality every restaurant shares in an appraisal, and sometimes is overlooked by the buyer/borrower.

So what should a buyer/borrower do prior to an appraisal? Whether buying or refinancing an existing restaurant, an accurate square footage of the restaurant is very important. The square footage defined by the bank and appraisal company is the operating space, i.e. the dining room(s), bar(s), kitchen(s) (above grade). It does not include storage in any area below grade or attics. I have had restaurateurs miscalculate square footage by over 1,000 square feet! Hard to believe, but that information was supported by a written appraisal performed for another bank in a prior financing. That almost ended all efforts to refinance this property.

I would also recommend retaining your own appraisal prior to applying for a bank loan. The cost will be $2,500-$5,000, but in some cases it is important information to know. Why? If you receive either a Letter of Intent, or Commitment Letter from a bank they will ask for a non-refundable fee to move forward on your request. If the appraisal comes in for much less than is necessary to secure the loan, you will not be able to close for the amount requested or at all. An ounce of prevention is worth a pound of cure.

Finally, although not part of the appraisal process, but just as important, is the Environmental Inspection. In most cases this is a report that is requested by the bank at time of approval, but as a future owner, this is something you need to understand. If there are any issues in an environmental report it needs to be addressed and remedied prior to closing. Remember, once you own it, it’s your problem. That is also important when executing a lease on a restaurant. Most leases offer the lessee the right to an environmental inspection on the restaurant prior to possession with the landlord stating there is no environmental issues to the best of his/her knowledge. If you have an option on your lease to purchase the land & building and you did not have an environmental inspection prior to possession, that clause can come back to haunt you when you are exercising your option.

In the banking environment that now permeates all lending decisions, the value of the underlying collateral, now is more carefully analyzed with stricter guidelines as to whether a loan is granted.

The new mantra is “the restaurant is worth what can be financed” has never been truer.

How Banks Interpret Your Restaurant Loan Application

Lending to restaurants (aka Diners, Catering Facilities and Fast Food Establishments) has always been a difficult task for Banks. The primary reason is that a percentage of sales are cash. When reviewing either Federal Tax Returns or Financial Statements, banks know they are not seeing a true accounting of sales and expenses.

What we advise all owners is that banks want to see consistent sales growth with predictable cost of sales and profits that support the growth of the restaurant. Ultimately banks look for the businesses cash flow to support the loan payments on the loan they are requesting. The ratio a bank looks at is called a “Debt Service Coverage Ratio” or DSCR. What does that mean?

Cash flow of a business is Depreciation/Amortization (non-cash expense), Net Profits before taxes, interest on existing loans that will be paid off with the new loan, and in some cases Rent (if the restaurant has a closely-held real estate holding company that it pays rent to or if the restaurant is financing the option to purchase the land & building from a third party landlord),

So lets say the annual cash flow for all those categories is $125,000 for the previous year and the loan you are requesting has annual principal and interest payments of $100,000. You would divide the annual cash flow by the annual bank payments ($125,000 divided by $100,000) which would be 1.25X. What that means is for each $1.00 of loan payments there is $1.25 of cash flow to support the loan or a cushion of .25.

Banks seek a minimum of 1.20X, but in most cases they look for 1.30X+ DSCR in these economic times.

Although it is easy to find what your Restaurant’s historical cash flow is by reviewing your last three years Federal Tax Returns (what a bank always requires to see the trend of the Restaurant), but owners can never figure out what their proposed loan payments will be monthly and annually. To find that out, do a Google search for “Loan Amortization Calculator”. Once on a site with a loan calculator, enter the amount of your request, current market interest rates and the term of the loan you are seeking and it will provide you with the monthly payment.

Understanding Your Credit Report and Credit Score

One of the first things I request before engaging with a client to pursue a new loan request is your current credit report. I am not a lender, so by law I cannot access your credit report. Only the bank or other loan intermediaries can contract with the credit report providers for that information. You can obtain your credit report by going to the Internet and ordering your credit report online. The report is issued immediately, which you can save and print.

What lender’s look for is a Tri-merge report, which is the credit scores from all three credit report providers. The first item they look at is what your FICO Score is. FICO Scores can range from a low of 450 to a high of 850. The higher the score the better your credit history. Scores should range in the 700s when applying for a business loan.

What Makes Up A FICO Score?

Factors Effecting Your Credit Score
Credit Score Factors

The approximate makeup of the FICO score used by U.S. lenders Credit scores are designed to measure the risk of default by taking into account various factors in a person’s financial history. Although the exact formulas for calculating credit scores are secret, FICO has disclosed the following components:

  • 35%: Payment history—Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a FICO score to drop. Bills paid on time will improve a FICO score.
  • 30%: Credit utilization—The ratio of current revolving debt (such as credit card balances) to the total available revolving credit or credit limit. FICO scores can be improved by paying off debt and lowering the credit utilization ratio. Alternatively, applications for and receiving the credit limit increase will also drive down the utilization ratio. The closing of existing revolving accounts will typically adversely affect this ratio and therefore have a negative impact on a FICO score.
  • 15%: Length of credit history—As a credit history ages it can have a positive impact on its FICO score.
  • 10%: Types of credit used (installment, revolving, consumer finance, mortgage)—Consumers can benefit by having a history of managing different types of credit.
  • 10%: Recent searches for credit—Credit inquiries, which occur when consumers are seeking new credit, can hurt scores. Individuals shopping for a mortgage or auto loan over a short period will likely not experience a decrease in their scores as a result of these types of inquiries, however.

While all credit inquiries are recorded and displayed on credit reports for a period of time, credit inquiries that were made by the owner (self-check), by an employer (for employee verification) or by companies initiating pre-screened offers of credit or insurance do not have any impact on a credit score.

There are other special factors which can weigh on the FICO score.
• Any money owed because of a court judgment, tax lien, etc. carry an additional negative penalty, especially when recent.
• Having one or more newly opened consumer finance credit accounts may also be a negative.

It is important also to review your credit report for accuracy. There are many times I have review a report and the information the credit report providers have is wrong. You can challenge the inaccurate information, as long as you have supporting information or if not, you can write the actual events as you know them to be in the section requesting information by the credit report provider. They will follow up with the entity that provided that information, and if it is incorrect, they will change the history.

In some cases I have seen FICO Scores change upward by 50 points when challenged by a person. Remember not all the information is accurate and that is what a bank is relying on in making their loan decision.