Credit Scoring for Leasing: How Leasing Models Differ from Bank Lending Models
How can the process of scoring be simplified for micro-lenders?
This article examines how the application of credit-scoring models for leasing differs from models developed for bank lending. It argues that:
- Models for bank lending measure a client's likelihood to pay back a credit obligation.
- Models for standard equipment leasing:
- Assess client-repayment risk;
- They should also consider asset worth and vendor relationships as both affect the overall risk of a lease contract;
- Expert models can automate an easy-to-use gap analysis of the difference between outstanding principle and market-resale value - this would facilitate a tighter control of risk-exposure for each leasing contract.
- Lists the differences between lending and leasing models;
- Identifies the following three key risk areas for leasing transactions:
- Client risk;
- Vendor risk;
- Asset resale risk.
- Explains how to build a scoring model for standard equipment leasing;
- Discusses gap analysis.
The paper concludes that:
- Scoring for standard equipment leasing differs from scoring for small business lending;
- Gap analysis is useful to measure principle at risk and decide how best to control it;
- User-friendly software can perform the scoring calculations and provide customer-facing staff with sophisticated, yet easy-to-use graphic analysis of the potential exposure of any deal.
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