Well, I came to the conclusion that yes, it’s good that we have computers, even if they do crash from time to time. And for proof, we need look no further than equipment financing credit models used to assess credit risk.

What do I mean by this? To answer that, let me tell you about Mr. Roberts and myself.

Mr. Roberts was sort of my mentor in the equipment financing industry. He was that guy that every company had that has been around since the company started, he was (seemingly) 80 years old, and he knew EVERYTHING.

Mr. Roberts had this little notebook that he treasured. And in this little notebook was all manner of formulas and notes regarding past loans. Mr. Roberts used this notebook to make equipment financing decisions. At a glance (well, not really – his handwriting was atrocious), one could look at his notebook and deduce that Mr. Roberts was the greatest credit mind of his time. He had amounts, types of equipment, where the company was located, how old the company was, etc – and he concocted formulas that helped him judge just whether a company could get an equipment lease. Brilliant stuff.

This was… two companies and about a quarter century ago. And would you know that today, Mr. Roberts would be out of a job. Because his success rate regarding loans defaulted, while good for its time, would pale in comparison to what we can do today. In short, we don’t use notebooks and gut feeling anymore – we have FICO-created computer models that make my success rate quite a bit better than what old Mr. Roberts’ notebook could predict. Yes, we still tweak these models based on our own data, but equipment financing companies are stronger today using computer models to assess credit risk.

In a future post, we’ll take a look at some of the data these models use. But yes, to answer my original question, computers are definitely needed. However, I have yet to find a computer that could spin a yarn quite like Mr. Roberts. Here’s to you, old-timer!!