One of the non-financial companies we look at has established a small loan portfolio which it intends to grow. I get inputs like gross loans written, APR, average loan life, average loss rate - so I have all the data I need to model the cash flows and intuitively I understand how it should work, my difficulty is with the model design. Usually I work with basic revenue/cogs/margin-type businesses.
Can anyone point me to a basic design structure that minimizes the risk of modeling errors? I'm struggling with the fact the average loan life is 1.75 years and how to capture the impact from year(x-1) loans in year(x).
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