Credit Memo
A credit memo is the written document a lender's credit team prepares to present a loan request to committee, setting out the borrower, the property, the analysis, the risks, and the recommendation.
What a credit memo is
The credit memo is the document a loan lives or dies on. It is written by the credit analyst or underwriter, reviewed by a credit officer, and presented to the loan committee that holds approval authority. After closing it becomes the permanent record of why the institution made the loan, and it is one of the first documents an examiner asks for.
What is usually in one
- Request and structure. Amount, purpose, term, amortization, rate, fees, and collateral.
- Borrower and sponsor. Ownership, experience, track record, global cash flow, contingent liabilities, and guaranty structure.
- Property. Type, location, physical condition, and current operations.
- Financial analysis. NOI as underwritten, DSCR, LTV, debt yield, and the assumptions behind each.
- Market. Submarket conditions, comparable rents and sales, and supply.
- Risks and mitigants. Named plainly, each with what offsets it.
- Policy compliance. Where the deal sits against the institution's written credit policy, and any policy exceptions requested.
- Recommendation and conditions. Approve, approve with conditions, or decline.
What examiners look for
Regulators reviewing a loan file are testing whether the decision was documented, consistent with the institution's own policy, and supported by evidence in the file. A memo that states a conclusion without showing the underlying figure, or that omits an exception that was in fact granted, is a finding waiting to happen.
Why turnaround matters commercially
At most community banks the memo is the slowest step between application and approval, and borrowers experience that delay as the lender's speed. A borrower with three term sheets in hand takes the one that arrives first at acceptable terms often enough that memo turnaround functions as a pricing lever.