Credit Risk Assessment
Connective Lending carries out credit risk assessments against borrowers who seek to secure short-term bridging loans. The credit risk assessment helps us in determining several factors such as:
Credit risk assessments are carried out using judgement and assumption taking into consideration factors including those listed above. Data that we obtain is converted into scores which are applied against individual criteria’s, to create a total risk assessment score. The data/information which we assess will be for example:
We also use the data provided by the credit reference agency towards the probability of default by the borrower. The data assists us in determining the potential outcome for the borrower in the short-term future.
The credit risk assessment is undertaken in three main areas:
For each section, separate scores are applied to each entry. Each section is scored out of 10 and adjusted for their respective weight. Weights are applied as follows:
|Area of Assessment||Weight|
|Borrower's risk (creditworthiness)||35%|
|Exit Strategy (affordability assessment)||15%|
A completed credit risk assessment allows us to correctly apply an overall risk category for that borrower/loan. The categorisation process helps us evaluate the risk we believe a loan poses, the interest rate applicable and the probability of default.
We categorise risk by calculating the total score generated by the credit risk assessment. Dependent on the score, we will categorise the risk into one of the following categories:
Credit Assessment Rating Score Card
|Credit Risk Assessment Score||Credit Rating|
|7.1 - 10||Unlikely|
|5.1 - 7.0||Possible|
|3.0 - 5.0||Likely|
The lower the score the higher the risk. Where loans are scored below 2.9, these are categories as 'Intolerable' due to the very high risk posed and are refused at the source.
Risk Categories Explanation
Once we have completed our credit risk assessment and determine the overall score applicable, we are able to apply a score to determine the overall risk category that loan applies to.
The risk categories are:
Unlikely: The loan poses a low risk and a probability of default is 'unlikely' to occur.
Possible: There is a medium risk and a probability of default is 'possible' to occur.
Likely: The loan is deemed as a higher risk and a probability of default is' likely' to occur.
Loans which score 2.9 or below in our credit risk assessment will automatically be refused as they have not met the minimum criteria.
Interest Rate for lenders
Our credit risk assessment assists us in applying an interest rate we deem fair and appropriate against the risk the loan poses. For high-risk loans, we will apply a higher interest rate, compared to those categorised as low risk.Our firm implements a credit risk management framework which helps us assess ongoing risk categorisation to ensure that our credit risk assessment is correctly categorising loans based on the assessment we applied.
Please note we do not undertake credit risk assessments against pawnbroking loans. Our primary observation for pawnbroking is to determine the correct value of the asset that is being provided as security.