Combining Information to Better Assess the Credit Risk of Small Firms and Medium-Sized Enterprises

Excerpt from Moody's Analytics Risk Perspectives article:

A lender can evaluate the risk of a borrower based on the borrower's behavior. Does the entity have a history of late payments? How long has it been a borrower? Does it have lines of credit? If so, is it maxing out these lines? If you visit the enterprise, is it what it claims to be? We think of answers to such questions as behavioral information.

Additionally, the lender can analyze the borrower's finances. Does the value of the borrower’s assets exceed its liabilities? Is revenue sufficient to meet non-discretionary obligations? Is its financial performance stable over time? Is it improving? We think of answers to these questions as financial information.

A lender that assesses both behavioral information and financial information is able to make better decisions than a lender that does not."

Read the full article today to learn how to combine behavioral and financial data into a better assessment of credit risk.