THE USAGE OF CREDIT SCORING MODEL FOR EVALUATION OF CREDIT WORTHINESS OF SMALL ENTERPRENEURS

Credit scoring is a process of determining how likely applicants are to default with their repayments (Hand, Henley, 1997). Although there are rules and procedures in evaluating credit worthiness in Croatia, the fi nal decision whether to accept or reject a credit application is based on judgemental system of credit analysts or credit board of the bank. So, this paper has two aims: (i) to create credit scoring model that will show important variables in small business lending for the concrete fi nancial institution; (ii) to compare decisions made by judgemental system with those made by credit scoring model for the
concrete fi nancial institution. Data sample used for this research consisted of 200 small business loans of one Croatian savings and loan association. Since the most of the variables were categorical, logistic regression was used in building a model. The results showed
that the following groups of variables are important in the small business credit scoring: entrepreneurial idea, growth plan, marketing plan, small business characteristics, personal entrepreneurs characteristics and credit program characteristics. The research conducted on the data of one savings and loan cooperative confirmed that the decisions made by credit scoring model are more accurate then those made by judgemental system.