Note
The calculations discussed in this article only apply to Opportunities.
When an Opportunity contains multiple loans, in general, the profitability of the opportunity is impacted by the duration (maturity) of each loan within the Opportunity. As a result, weighting each loan equally by using total net income and total equity to determine an Opportunity's target without taking each loan's duration into consideration would misrepresent the profitability of the Opportunity.
The Loan Weight represents how PrecisionLender weighs loans within an Opportunity based on their duration. This figure is represented as a percentage. Utilizing information about the type of loan, the loan's maturity, and details from the loan's financial statement, we can determine the weight for each loan within the Opportunity.
If a prepayment rate is applied to one of the loans within your Opportunity and the payment type is Amortizing, the duration used in the loan weight calculations may be shortened. You can view if this is occurring by checking the duration within the Amortization Table after selecting the Advanced Analytics button.
In This Article
 Opportunities Without a Line of Credit or Letter of Credit
 Opportunities With a Line of Credit or Letter of Credit
 Conversion Loans
Opportunities Without a Line of Credit or Letter of Credit
For Opportunities with multiple loans that don't involve a Line of Credit or Letter of Credit, the loan weight formula is simple.
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 60month Commercial Installment and a 12month Commercial Construction, the loan weights are:
 60month Commercial Installment = 100%
 12month Commercial Construction = 20%
Applied to Opportunity Return in PrecisionLender
 This Opportunity contains a
 Commercial Real Estate  Investment
 5year maturity
 Net Income = $9,444
 Average Equity = $47,206
 Commercial Installment
 7year maturity
 Net Income = $6,080
 Average Equity = $33,771
 Commercial Real Estate  Investment
 Loan Weight
 Commercial Real Estate  Investment = (5 years/7 years) * 100% = 71.43%
 Commercial Installment = 100%
 Opportunity Return
=Weighted Net Income / Weighted Equity
=[($9,444 * .7143) + ($6,080 * 1)] / [($47,206 * .7143) + ($33,771 * 1)]
=$12,825.85/$67,490.25 (slight difference from financial statement due to rounding)
=19.00%
Opportunities With a Line of Credit or Letter 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 loan 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 loan 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 60month Commercial Installment and a 12month Line of Credit with a 50% expected renewal retention, then the loan weights are:
 60month Commercial Installment = 100%
 12month 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
 5year maturity
 Net Income = $9,444
 Average Equity = $47,206
 Line of Credit
 1year maturity
 Net Income = $2,280
 Average Equity = $12,000
 Expected Renewal Retention = 75%
 Commercial Real Estate  Investment loan
 Loan 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
=[($9,443 * 1) + ($2,280 * .6102)] / [($47,206 * 1) + ($12,000 * .6102)]
=$10,835.26 / $54,528.40 (slight difference from financial statement due to rounding)
=19.87%
Conversion Loans
Conversion Loans are recognized as having one combined maturity. If you’re pricing a single conversion loan, the combined maturity of both segments of the conversion loan represents the life of the Opportunity. In this case, PrecisionLender uses a simple weighting based on the maturity of the conversion loan. In other words, the denominator of the weighting is the total term of the two segments of the deal.
Calculation
Single Conversion Loan
 Each loan = (Length of Loan Duration / Length of Conversion Loan Duration) x 100%
For example, if an opportunity contains a 24month commercial construction loan that converts to 36month permanent financing, then the total term of the conversion loan is 60 months, and the loan weights are:
 24month construction loan = 40%
 36month permanent financing = 60%
Applied to Opportunity Return in PrecisionLender
 This Opportunity contains a
 Commercial Construction loan
 2year maturity
 Net Income = $6,393
 Average Equity = $31,000
 Commercial Real Estate  Owner Occupied loan
 3year maturity
 Net Income = $11,302
 Average Equity = $39,987
 Commercial Construction loan
 Loan Weight
 Commercial Construction = (2 years/5 years) * 100% = 40%
 Commercial Real Estate = (3 years/5 years) * 100% = 60%
 Opportunity Return
=Weighted Net Income / Weighted Equity
=[($6,393 * .40) + ($11,302 * .60)] / [($31,000 * .40) + ($39,987 * .60)]
=$9,338.40/$36392.20
=25.66%
Additional Loans
If an Opportunity contains a conversion loan, any additional loans will be weighted based on the loan with the longest maturity, since that loan represents the life of the Opportunity.
For example, an Opportunity contains a 24month commercial construction loan converting to 36month permanent financing, bringing the total term of the conversion loan to 60 months.
 Adding a commercial installment with a 48month maturity, the weights for each loan are:
1. Commercial construction = (2 years/5 years) * 100% = 40%
2. Permanent financing = (3 years/5 years) * 100% = 60%
3. Commercial installment = (4 years/5 years) * 100% = 80%
Using the same example, an Opportunity contains a 24month commercial construction loan converting to 36month permanent financing.
 Adding a commercial installment with a 72month maturity brings the life of the Opportunity in this example to 72 months, and the weights for each loan are:
1. Commercial construction = (2 years/6 years) * 100% = 33%
2. Permanent financing = (3 years/6 years) * 100% = 50%
3. Commercial installment = (6 years/6 years) * 100% = 100%
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