Given bankers' magnetic attraction to the burgeoning small business loan market and the Riegle Community Development and Regulatory Improvement Act of 1994, which allows banks to sell a higher percentage of such loans, it was only a matter of time before securitization of the loans became a reality.
CFI ProServices and Fair, Isaac are teaming their decision making capabilities, along with CFI's automated document abilities, in an effort to standardize the small business lending process-and hopefully make it more appealing for the creation of a secondary market. The non-exclusive agreement pairs Fair, Isaac's SBSS ScoreWare small business credit scoring system, which offers statistically derived credit scoring tools, with CFI's Laser Pro fisCAL Online commercial credit analysis software, which offers analysis of cash positions, IRS data, RMA scores and more. "If you talk to bankers, one of the things you will find uniformly...is you need more information than just a credit score," says Matt Chapman, CEO of CFI ProServices.
And while Fair, Isaac might disagree with that assessment, both companies realize that the other has products they need to advance the creation of a secondary market for small business loans. In Fair, Isaac's case it is taking advantage of CFI's standardized paperwork. "There's a real lack of standardization in small business; there's a lot of customization of products, a lot of different documentation and certainly many different underwriting standards," says Latimer Asch, vp, commercial products at Fair, Isaac. "The real advantages (to the deal) are the effects of being able to participate in the securitization of the marketplace."
The software geared to seamlessly interface the two companies' products should be ready this month, Asch says.
CFI has an even greater stake in promoting the secondary market-it is part-owner of Lorie Mae, a new company which will buy the small business loans and issue the ensuing securities. "It's a case where we didn't believe that the rating agencies would be satisfied with nothing more than a ScoreWare report," Chapman says. "One of the advantages CFI brings to the party is that LaserPro automatically standardizes all the loan documentation."
Lorie Mae's primary market will be community banks striving for a high degree of liquidity.