How to Write a Credit Memo: Outline, Template and Tips

A credit memo, sometimes called a credit approval memo or loan write-up, is the written case for a loan request. It describes the borrower, the request and the structure, analyzes repayment capacity and collateral, names the risks and how they are mitigated, and ends with a recommendation. The approving officer or credit committee reads it and decides.

The memo is also a permanent record. Loan review, examiners and the next relationship manager will read it to understand why the bank made the loan and what it expected to happen. A good memo answers their questions without anyone needing to call the person who wrote it.

The first reader is the approver, whether that is a single officer with delegated authority or a committee. They want to know, quickly, what is being asked, how the loan gets repaid, what could go wrong and whether anything breaks policy. Most approvers read the summary closely and skim the rest unless something catches their eye.

Later readers have different needs. Loan review wants to see that the risk grade matches the analysis. Examiners look for sound underwriting and documented exceptions. Whoever handles the annual review wants the original assumptions so they can compare them with actual results. Writing with all of these readers in mind makes the memo more useful and saves rework later.

Formats differ from one lender to the next, and a small renewal may combine several of these sections into a few lines. Still, most commercial credit memos, at community banks, credit unions and larger lenders alike, contain some version of the sections below, roughly in this order. If your institution has a required template, follow it, and use this list to check that nothing important is missing.

Write the summary last, after the analysis is done, and keep it to one page or less. Lead with the request in a single sentence, then state the recommendation. Follow with the facts that support it: the debt service coverage ratio, the loan-to-value, the guarantor's liquidity and any exceptions. If there is a serious weakness, put it in the summary. Approvers lose trust in a memo when the biggest risk shows up on page seven.

Example only: "We recommend approval of a $1,000,000, 10-year term loan to purchase equipment. Historical coverage is 1.45x and remains above 1.20x if revenue falls 10%. The loan is secured by the equipment and a guarantee from the majority owner, who reports $400,000 in liquid assets. One exception: amortization exceeds policy by two years, offset by the guarantor's liquidity."

The most common weakness in credit memos is a financial section that restates the spread in sentences. "Revenue increased 8% from $5.0 million to $5.4 million" tells the reader nothing the spread did not. The approver needs to know why revenue rose, whether it will continue, and what it means for repayment.

Focus on causes and consequences. Explain margin changes, say whether a jump in receivables reflects growth or slower collections, and connect leverage to the new debt. Run at least one simple stress case, such as a revenue decline or a rate increase on variable debt, and show the coverage that results. Cite where key numbers came from so a reviewer can check them.

List every policy exception plainly, even small ones, and explain why it is acceptable in this case. An exception without a mitigant reads like an oversight. Many banks track exceptions across the portfolio, so the wording should be specific enough to count and compare.

For the risk grade, show your reasoning against the bank's rating definitions rather than just stating a number. Point to the factors that drove it: repayment capacity, leverage, collateral, guarantor support and management. If the proposed grade sits at the edge of two grades, say so. The reviewer who assigns the final grade will appreciate knowing where the judgment calls are.

A template helps only if it pushes writers toward analysis instead of filling boxes. Analysts, underwriters and credit officers who write memos that move quickly through approval tend to share a few habits, and none of them depend on a particular format. These are the ones that make the biggest difference to how fast a committee can decide and how well the memo holds up later.

Approvers want to see a primary source of repayment, almost always operating cash flow for a commercial loan, and at least one secondary source, such as collateral or a guarantor. Describe each one honestly. Say what the cash flow depends on: a major customer, a contract renewal or stable margins. If the loan funds growth, show whether historical cash flow already covers the new debt or whether repayment depends on projections, and if so, how those projections compare with past results.

For collateral, give the valuation source and date, the advance rate the credit policy applies, and the resulting loan-to-value or collateral coverage. Be specific about lien position and anything that weakens the collateral, such as specialized equipment with a thin resale market or receivables concentrated in a few customers. For guarantors, report liquidity separately from net worth and note other guarantees they have given. A guarantor with a large net worth but little cash offers less support than the headline number suggests.

In Aarvion Risk OS Commercial Credit, the credit memo and committee pack are drafted from the source documents and the analyst-confirmed spread, and the credit officer edits the draft. Policy test results and the debt service schedule come from the same data, so the numbers in the memo match the analysis behind it.

The memo shows a proposed risk grade alongside the grade assigned by the reviewer, and an assignment is marked stale if the underlying facts change. Approvals are routed according to the bank's delegated authority matrix, and every AI step is checked against the bank's own rules and recorded.