In 2012, due to the increase in volume from Broker business and our own needs to move to a more objective underwriting process, American Leasefund developed its own proprietary “Leasefund Score” algorithm. While most lenders in the equipment finance industry have their own scoring model, we sought to create an index that does more than measure personal and business credit by a different standard. We wanted to find a way to capture a 360 degree viewpoint of any given transaction, assessing risk at all angles, instead of merely looking at payment history.
After reviewing our entire portfolio of leases from the inception of the company, we collected sufficient data to create the Leasefund Score, finding that our model did more than just predict risk. It actually appeared to predict whether or not a transaction would be a good fit for the portfolio. This allowed us to gauge default risk and compute the necessary yield to offset it, resulting in a dynamic decision calculus that would allow underwriters to adjust collateral or advance payment requirements to make a transaction work and make sense at a given price point. Our mantra of ‘every transaction is doable with the right structure’ became more than just a belief: it became a formula for funding deals.
So, what makes up the Leasefund Score?
While the specifics of our scoring model are confidential, we advise brokers that the following factors are considered in our decisions:
Even though we score transactions, we use a common sense underwriting approach. Our underwriters recognize that an internal score is merely one tool to inform their credit decision and is not designed to make the decision for them. Our brokers find that the transactions most likely to be approved are ones in which the business has solid cash flow (where the customer has at least five times the monthly payment as an average bank balance.) On transactions above $15,000, the better the cash flow, the more forgiving we can be on credit issues or a shorter time in business. On transactions under $15,000, personal credit becomes much more important.