The three major credit reporting agencies, Equifax, Trans-Union and Experian, collect similar information to help businesses answer a basic question: Is the loan or credit applicant a good risk?
But even if a liquid market in such securities could be created, it would still rely on banks with experienced loan officers to assess the credit risk of small firms.
ECONOMIST: Growing firms need to look beyond the big banks for credit
The three major credit reporting agencies, Equifax (nyse: EFX - news - people ), Trans-Union and Experian, collect similar information to help businesses answer a basic question: Is the loan or credit applicant a good risk?
At least that is the way it works when an ordinary citizen judged to be a bad credit risk seeks a loan.
At the same time, ever more layers of securitisation have separated the original lender or broker of a loan from the ultimate bearer of credit risk.
James Adams is a Senior Analyst at Sageworks, a leading provider of credit risk management, loan loss reserve and stress testing software to financial institutions.
FORBES: For Banks, There Are Risks In Using Excel For Underwriting
Santander has staffed its Latin American operations with its own credit-risk specialists, who veto any loan that offers less than a risk-adjusted return of 20% a year.
It was a risk, but she took out a credit card loan and paid for it.
It has established ground rules for extending credit to help it manage credit risk, and closely monitors the performance of its loan portfolio.
Even given the same credit score, lenders might offer different loan terms, because they have different risk models or competitive pressures.
FORBES: Credit Scores Often Unreliable, Warns Consumer Financial Protection Bureau
For instance, a conventional loan usually takes half the time process including the time it takes to review the credit risk and making the commitment to financing.
These days, though, banks demand bigger down-payments and better credit scores to lessen the risk of having to buy back a delinquent loan from Fannie Mae and Freddie Mac, the now government-controlled agencies that securitise and guarantee most residential mortgages.
ECONOMIST: The housing market: Pulling its weight at last | The
Lenders are required to disclose credit scores to consumers if they are used to assess the risk of a loan applicant.
FORBES: Credit Scores Often Unreliable, Warns Consumer Financial Protection Bureau
"Past experience has taught us that a bad loan crisis usually came three years after a period of abnormal credit surge, " Wei Guoxiong, chief risk management official with the Industrial and Commercial Bank of China was quoted as saying by the Xinhua news agency.
This will leave the high-risk pool now has two options: turn to credit unions, or give up on getting a loan.
应用推荐