When an opportunity contains multiple loans, the profitability of the opportunity will be impacted by the duration of each loan within the opportunity. As a result, using total net income and total equity (for example) to determine an opportunity's target without taking each loan's duration into consideration (weighting them equally), misrepresents the profitability of the opportunity. The 'Scenario Weight' represents how each loan within an opportunity is weighted based on it's duration (maturity). This figure is represented as a percentage. Utilizing information about the type of loan, the loan's maturity, and from the loan's financial statement, we can determine the scenario weight for each loan within the opportunity.

**please note that these calculations only apply to opportunities. *

### Opportunities Without a Line of Credit

*Calculation*

- Loan within the opportunity with the longest duration = 100%
- Each remaining loan = (Length of Loan Duration / Length of Duration of the Longest Loan within the Opportunity) x 100%

For example, if there are 2 loans in an opportunity, a 60-month Commercial Installment and a 12-month Commercial Construction, then the scenario weights are:

- 60-month Commercial Installment = 100%
- 12-month Commercial Construction = 20%

*Applied to Opportunity Return in PrecisionLender*

- This opportunity contains a
- Commercial Real Estate - Investment
- 5-year maturity
- Net Income = $8,904
- Average Equity = $42,981

- Commercial Installment
- 7-year maturity
- Net Income = $3,888
- Average Equity = $21,554

- Commercial Real Estate - Investment

- Scenario Weight
- Commercial Real Estate - Investment = (5 years/7 years) * 100% = 71.43%
- Commercial Installment = 100%

- Opportunity Return

=Weighted Net Income / Weighted Equity

=[($8,904 * .7143) + ($3,888 * 1)] / [($42,981 * .7143) + ($21,554 * 1)]

=$10,248.13/$52,255.33 (slight difference from financial statement due to rounding)

=19.61%

### Opportunities with a Line of Credit

When the opportunity contains a line of credit, given that there is a probability that the line of credit may or may not be renewed once it reaches maturity, the expected renewal retention must be factored into the scenario weight.

*Calculation*

- Loan within the opportunity with the longest duration = 100%
- If a remaining loan is a line of credit, then weight = Summation of the initial weight with the probability that the scenario weight is renewed for each year remaining in the opportunity
- Sum the following items
- Initial Weight = (Line of Credit Duration / Length of Duration of the Longest Product in the Opportunity) x 100%
- For each year remaining for the duration of the opportunity, multiply the expected renewal of the Line of Credit by the previous year’s weight

- Sum the following items
- If a remaining loan is an installment loan, then weight = (Length of Loan Duration / Length of Duration of the Longest Loan within the Opportunity) x 100%

For example, if there are 2 loans in an opportunity, a 60-month Commercial Installment and a 12-month Line of Credit with a 50% expected renewal retention, then the scenario weights are:

- 60-month Commercial Installment = 100%
- 12-month Line of Credit
- Initial Weight
- Year 1 = (12 months / 60 months) * 100% = 20%

- Prior Year's Weight * Expected Renewal Retention
- Year 2 = 20% * 50% = 10%
- Year 3 = 10% * 50% = 5%
- Year 4 = 5% * 50% = 2.5%
- Year 5 = 2.5% * 50% = 1.25%

- Total Line of Credit Weight = 20% + 10% + 5% + 2.5% + 1.25% = 38.75%

- Initial Weight

*Applied to Opportunity Return in PrecisionLender*

- This opportunity contains a
- Commercial Real Estate - Investment loan
- 5-year maturity
- Net Income = $8,904
- Average Equity = $42,981

- Line of Credit
- 1-year maturity
- Net Income = $620
- Average Equity = $12,000
- Expected Renewal Retention = 75%

- Commercial Real Estate - Investment loan

- Scenario Weight
- Commercial Real Estate - Investment = 100%
- Line of Credit
- Year 1: (1 year / 5 years) * 100% = 20%
- Year 2: 20% * 75% = 15%
- Year 3: 15% * 75% = 11.25%
- Year 4: 11.25% * 75% = 8.4375%
- Year 5: 8.4375% * 75% = 6.328%
- Total Weight = 61.02%

- Opportunity Return

=Weighted Net Income / Weighted Equity

=[($8,904 * 1) + ($620 * .6102)] / [($42,981 * 1) + ($12,000 * .6102)]

=$9,282.32 / $50,303.40 (slight difference from financial statement due to rounding)

=18.45%

For more information on expected renewal retention, see Setting Expected Renewal Retention for Lines of Credit.