Credit Scoring for Leasing: How Leasing Models Differ from Bank Lending Models

How can the process of scoring be simplified for micro-lenders?
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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.

The paper:

  • 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.

About this Publication

By Caire, D.