What does the Genesis Report do and what does it deliver?

The Genesis Report was developed to help companies that extend credit to NEW small businesses (businesses less than 2 years old) make better credit decisions. The Genesis Report is comprised of three key measures; the Genesis Score, Sales Target and Debt Target.

i. Genesis Score

Used to measure the likelihood that a new small business will survive its first four years of operations (business failure is defined as ceasing operations).

ii. Sales Target

An estimate of the total first year sales of the business including an estimate of the probable sales range for that business; and

iii. Debt Target

Debt Target provides an estimate of the amount of first year debt that a comparable company would require to support the business. This decision support module helps credit grantors structure a loan based on the risk profile of the borrower.

The Genesis Report also includes a summary of Business/Owner Characteristics along with Reject Reasons.

The Genesis Analytics team can assist clients in using the Genesis Report in conjunction with their current risk management tools to develop new strategies that can improve approval rates and/or decrease losses while improving overall profitability according to each client's individual risk tolerance.

Using the Genesis Report, creditors who lend into the New Small Business segment can:
• Decrease the bad rate up to 35%, while maintaining the same approval rate; or
• Increase approval ratios up to 55% while maintaining the same bad rate; and
• Decrease origination and processing costs up to 40%.

In addition to providing a unique credit decisioning tool, Genesis also provides access to a web-based analysis and management reporting system that is easy to use and can provide almost any type of required reporting or analysis using your own desktop.

Standard reports based on Genesis application information (Score Distribution, Characteristic Distribution and Accept/Reject) are provided quarterly to clients using the Genesis Report.

What is the definition of a new small business?

A New small business is a business with under $500,000 in equity that has been in operation for less than 24 months.

What criteria must a business meet for the Genesis Report to be applicable?

For the Genesis Report to be applicable, a new small business must:
1. have less than $500,000 invested in the business to date;
2. be requesting a loan under $250,000 ; and
3. have started operations within the last 24 months.

What is the definition of business failure?

Failure of the business is synonymous with closing operations, but does not include businesses that have been sold or have a change of ownership unless the new owners ceased operations.

How is the outcome definition of probability of survival reconciled with loan delinquency?

Genesis Analytics can provide a lender with a forecast of the application distribution and the projected bad rate (based on 90 day delinquency) using a combination of the Genesis Score with any other scorecard the lender is now using. This forecast can be enhanced by using the Lender's current experience or experience from scoring a sample of applicants with the Genesis Score. These approaches have been validated "In Market" by the use of the Genesis Score over the last two years by one of the world's largest commercial banks.

How is the Genesis solution different from other scorecards?

Typical Small Business Scorecards are not effective for new small businesses since they have been developed for the broad business segment, generally use limited "start-up" observations and suffer from sizeable reject inference bias. Most use Trade Payment and Financial information that are either insufficient or non-existent for new small businesses and are, therefore, of limited use in credit decisions. Furthermore, Personal Bureaus do not reflect the industry risk, business characteristics or management capabilities that impact a start-up's success.

The Genesis Report is the only credit decisioning tool that uses algorithms based on key attributes, also used by venture capitalists, that are highly correlated to credit risk including:
• management quality
• business viability
• industry risk

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How is the Genesis Report implemented?

Genesis Analytics has developed, and hosts, a web-based application called Genesis OS, which delivers the Genesis Report. A user simply logs on to our web site and begins entering application data.

Should the Genesis Score be used in conjunction with a personal credit score?

While the Genesis Score can be used independent of any other decision tool, Genesis Analytics recommends using it in conjunction with the business owner's personal credit score. In this way a lender gets the benefit of evaluating both the viability of the business and the payment characteristics of the owner in making the credit decision. We recommend using a joint odds table decision matrix, which has two sets of variables - the Genesis Score and, for example, the FICO Score. The table is used to develop decision rules to either accept or reject applications based on combinations of the Genesis and FICO scores.

How long does it take to fill out an application?

The Genesis questions the applicant answers take less than 3 minutes to complete. Our scoring engine produces a Genesis Report instantly.

Is there any programming / system integration?

If a client wants quick deployment, then our web-based application, Genesis OS, can be used without any programming or system integration. If, however, a client would like to integrate Genesis into his or her own in-house application processing system, then Genesis is available to assist in the integration.

For either deployment method, a client simply provides Genesis Analytics with the appropriate policy rules and they will be built into a customized application. Genesis Analytics can also assist clients by recommending appropriate policy rules given the client's risk management philosophy and objectives.

How do we access applicant and performance information for management reporting?

In addition to providing a unique credit decisioning tool, Genesis also provides access to a web based analysis and management reporting system that is easy to use and can provide almost any type of required reporting or analysis using your own desktop.

On-line standard reports based on Genesis application information (Score Distribution, Characteristic Distribution and Accept/Reject) are provided quarterly to clients who start using the Genesis Report. On-line performance reports are also available but require client delivery of performance data.

Genesis Analytics can also develop an applicant/customer database with easy web-based access for reporting, analysis and CRM for all of your small business lending programs. Of course, if you prefer, we can feed all the relevant data back to you via XML for inclusion in your own database and reporting systems.

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A personal computer with access to the Internet is all that is required.

What kind of database?

Genesis OS uses Microsoft SQL Server as its database allowing for millions of transactions to be processed efficiently. Each client's information is stored in a separate database to ensure there is no co-mingling of data.

What are the security protocols?

Presently, the system uses 128-bit encryption, the highest encryption available. Individual security profiles are deployed to provide the level of access required by each client.

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How was the model developed?

The Genesis Score was developed using a weighted random sample representing 13.5 million small businesses operating in all major U.S. states and industries. The sample included sole proprietors, partnerships and corporations. The data was collected by the U. S. Census Bureau and is therefore not dependent on data from any specific lending institution.

Because the model was built using a sample that represents substantially all new businesses, not just those that received loans, there are no reject inference issues and the model can be fairly applied to small business populations that are not currently being served by lenders.

How many predictors are used in the model?

The Genesis Score uses 15 unique factors to predict business survival. These key predictors of business survival were developed from a set of over 200 potential characteristics. The model, which is based on fundamental economic theory, contains factors that are highly predictive of the failure rate of start-ups, many of which are used by venture capitalists: Management Quality, Business Viability and Industry Risk. These attributes are not collected by credit bureaus and so are not found in generic bureau scorecards.

The model has demonstrated stability over time since the key predictors are largely indifferent to economic conditions. The scorecard is therefore less sensitive to economic fluctuations than consumer scorecards.

How was the model validated?

The algorithms were validated over a 9 year time period using both split sample and forward validation sample techniques. For the last two years, the Genesis Score has been used by one of the world's largest Commercial Banks. During that time, use of the Genesis Score has increased almost ten-fold as the Bank has improved its' ability to mitigate risk and decrease operating costs.

We recommend that the Genesis Score be used in conjunction with a client's current credit criteria and in particular with the business owners personal credit score. Genesis Analytics can work with a client to provide an initial estimate of bad rates using a combination of Genesis and the business owner's personal score prior to full implementation of the Genesis Score.

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The Genesis Score predicts the probability that a new small business under 2 years old will survive in its' first four years of operations. The model's expanded time horizon of four years provides an excellent opportunity to consider the long-term value of lending to a new business.

The model has been in use for two years and has been empirically linked to 90+ day delinquency, the Bad Rate measure used by several other scorecards.

Use of the Genesis Score provides additional compelling advantages for financial institutions that are interested in, or currently lending to, small businesses under 2 years old:

  • A highly predictive model based on a cross section of all new small businesses;
  • No reject inference issues; the model can be applied to all new business segments;
  • "In Market" results are in line with Genesis projections;
  • The Genesis Score can be used with the business owner's personal credit score to significantly improve credit decision strategies: increasing loan approvals and decreasing losses; and
  • The Genesis model uses unique attributes not found in other scorecards that are more predictive of a new business' success and are less impacted by economic fluctuations.

New businesses are generally considered a risky segment with very high failure rates. However, by using the Genesis Score we can now identify a segment comprising over 43% of new businesses that have a survival rate over 90% through the first four years of business operations.

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Other Optional Services available from Genesis Analytics include:

• Modeling (Custom and Pooled Scorecards)
• Footprint Scorecard Validation (Retro-data pull or in-field use)
• Additional Data File Processing Support
• Additional Risk Management or Marketing Reporting and Analysis
• Prospect Database Management with Query Capability
• Technology and Programming
• Consulting
    • Risk Management Strategy (i.e., exception rules, overrides, judgmental review process)
    • Marketing, Cross Selling, Channel Management
    • Operations/Applications Workflow Strategy

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