PayNet, a leader in small business lending analytics and risk management solutions announces PayNet AbsolutePD® Stress Test Simulator, a new, powerful risk management solution that can greatly improve banks’ ability to forecast the risk associated with small business loan portfolios. This tool enables a loss forecasting methodology consistent with that employed in wholesale lending for commercial and industrial loans.

U.S. small businesses account for roughly 50% of GDP and 65% of U.S. new job creation, and remain a growth engine for US banks. Currently, widely-used scoring models are backward-looking and provide counter-cyclical results, over-estimating capital requirements in good times, and under-estimating capital requirements in adverse economic conditions.

Until recently, no tool existed to accurately and cost-effectively forecast obligor-level probability of default for small business loans. The “Comprehensive Capital Analysis & Review 2012: Methodology & Results for Stress Scenario Projections” (March 13, 2012)/Board of Governors of the Federal Reserve System, states: “Due to data limitations….loan level models of default are not feasible [for small business loan portfolios].”

Functionality, such as applying bank specific scenarios or regulatory scenarios and preparing nine quarter projections, present challenges to bankers’ ability to comply with the Federal Reserve January 2013 deadline.

“In addition to meeting regulatory requirements, PayNet AbsolutePD® Stress Test Simulator improves loan loss forecasts using varied economic conditions,” states William Phelan, president of PayNet, Inc. “This meets supervisory expectations and tells the CEO the margin of error for delivering planned earnings.”

PayNet AbsolutePD® Stress Test Simulator provides the critical building block to Estimated Loss (EL) and to stress-test EL under hypothetical, highly adverse economic conditions. For more information, visit paynetonline.com.