First, does the credit bureau have enough information on it to be a reliable basis for an evaluation? As mentioned earlier, we require the applicant to have been in the bureau for a minimum of three years with seven trade lines shown. If it doesn't, the applicant will generally not be considered so avoid wasting any more time on these "shallow" bureau applicants. If you know of some legitimate reason that we should consider the applicant you should contact your Pawnee Regional Sales Manager to discuss the applicant prior to submitting the deal.

Next, check the credit bureau scores. The simple fact is that our portfolio tracking does support the predictive value of most of the credit models in use today. We prefer the Enhanced DAS model produced by Equifax and we also like the FICO/Beacon model. Nonetheless, we will consider any credit models that you provide us. Generally, we're looking for DAS scores below 650 and FICO scores above 640. On smaller requests, DAS scores up to 750 and FICO scores down to 590 are considered. However, credit scores of themselves do not make our decision and we look deeper into the bureau for more reasons to make or reject the deal. Other factors considered are:

Open derogatories: This includes collection accounts, public record items and family/support obligations. The presence of open items over $1,000 will most likely exclude consideration unless the analyst can logically assume the obligation is resolved or evidence of the payment is supplied with the application. It's also important to note, that we do not entertain personal guarantor's that are currently making payments under tax liens or consumer work out plans. Further, we are critical of student loan defaults and more often than not we decline applicants with any child/family support obligations that have negative payment histories.

Next, we look at the absolute number of derogatory items including any prior bankruptcy. We've found that the number of derogatories are a precursor to a "hard collect" applicant. A PG that repetitively gets in squabbles with his or her creditors simply isn't worth the collection headache. That said, generally three or more "material" derogatories does not weight well in our credit thinking. Therefore, if there are material derogatories on the bureau we will need a story of explanation or preferably evidence that they have been paid. Small medical collections are generally not considered unless they are very numerous and over an extended time period.

We do consider bankruptcies provided the bankruptcy occurred three or more years ago and the PG has re-established creditor relationships, particularly installment type debt. There are some occasions when a bankruptcy can be accounted for with an adequate story or explanation, such as a medical circumstance. We will not consider anyone who is in a bankruptcy plan, 7, 11, or 13, at the time of the application.

Another element closely evaluated is the amount and utilization of revolving debt. Many small businesses use personal revolving credit cards of the owners to finance the company's operations. For this reason, we evaluate revolving debt as a source of financing the business. This is particularly true of a start up transaction. We particularly consider bank or other finance type credit cards as a source of financing but do not consider trade cards, such as Sears or Conoco, etc. We even relate the amount of availability to the size of the request. While we don't have any fixed rules the simple rule here is that the larger the request the more credit we like to see available in the credit cards.

Incidentally, we don't consider home equity loans under the revolve category but we do consider availability under the home equity loan when examining for cash or liquidity to finance the business. Again, from our perspective, the greater the availability on the home equity loan the better.

The absolute amount of revolve is also important but of itself without consideration of the amount of availability is generally not reason for turning an applicant down.

In summary, we consider both the dollar amount outstanding and the dollar of revolve available. The best applicant will have low current revolving balances with high availability and vise versa the higher the balance and lower the availability the less attractive the applicant.

Home ownership is very important in our consideration. We do not require home ownership. However, we like to see the guarantor's be homeowners particularly for larger lease requests. Obviously, greater length of time as a homeowner is a plus and positively influences our consideration.

Having a prior installment loan comparable to the requested lease amount is highly desirable. Guarantors who have previously satisfactorily handled installment debt comparable in size to the requested lease are favorably considered. The larger the request the more important it is to have a comparable. A request for a $30,000 lease with no comparables whatsoever may require further financial information to help demonstrate that the applicant either has experienced debt at this level and/or has the capacity to service this level of payments.

Recent slow pays are significant in our consideration. Generally, we are quite liberal on "old" (meaning more than one year old), slow pays but extremely sensitive to slow pays in the last 12 months. We are also sensitive to the number of accounts that have had slow pays in the past year. Applicants with numerous recent slows or with some recent slows and a history of slows will not be considered. Recent slows are also considered relative to the credit availability mentioned previously. The combination of recent slows and limited availability on credit cards is considered evidence that the applicant has limited liquidity to service their obligations.

Guarantors overall debt owed and composite debt service are considered relative to the apparent ability to service the debt. For example the guarantor who is showing a very large overall debt and debt service but is also showing that the majority of the debt has been serviced for several years would not be looked at unfavorably. However, the same guarantor who doesn't show a history of serving that level of payments would be less favorable. Further, the relationship of debt service, including the proposed lease payments, vs. the availability of credit or cash is evaluated. The greater the ratio of credit plus cash to payments the more favorable the consideration. This ratio is a subjective evaluation tool for our application only business but the ratio is actually calculated for credits requiring a financial package. Some larger application-only packages, greater than $20,000, don't provide enough information to make this debt service assessment and a financial package may then be requested to assist in finding the way to make the deal.

Finally, our analysts consider what write-up or supporting information adds value to the credit equation. For larger lease requests we look very favorably on information that can shed some insight on the operating capital availability; i.e. does the lessee have a line of credit established for the business, evidence of cash resources on the part of the PG such as savings or investment accounts that might provide future liquidity for the business and finally, we look very favorably on details about what we term "outside income". That is, most of our lessee's are small, closely held business, most often sole owners. It is very positive for a young business if a spouse has an income stream, usually through employment outside the business that can support the owner's personal obligations while the young business supports itself.