You sat across the desk from your banker. You answered all their questions. You handed over your financials. You shook hands and left feeling cautiously optimistic.
Here's what happened next — what you never got to see.
Your banker went back to their desk and started writing a credit memo. This document is essentially the internal case for or against your loan. It goes to a credit committee or a loan approver who has never met you, never shaken your hand, and will make their decision entirely based on what's in that memo.
Understanding what goes into it changes how you present yourself.
What a credit memo contains
Every bank formats theirs differently, but a standard commercial credit memo covers the same core elements:
• Business overview — what the company does, how long it's been operating, ownership structure
• Purpose of the loan — what the money is for and why it makes business sense
• Financial analysis — DSCR, revenue trends, profit margins, debt levels
• Credit history — personal and business credit scores, any derogatory marks
• Collateral analysis — what's being pledged and what it's worth
• Banking relationship — how long, deposit behavior, NSF history
• Industry analysis — how the borrower's business compares to peers
• Risks and mitigants — every credit memo identifies the risks and then argues why they're manageable
The last section is the one most people don't know about. Every credit memo has a risks and mitigants section. Your banker is literally writing down what could go wrong with your loan — and then making the case for why it won't. Help them make that case. |
How to help your banker write a better memo
Most business owners walk into a loan meeting and answer questions reactively. A smarter approach is to walk in and proactively address the things you know will end up in the risks section.
If your business is seasonal, explain it before they ask. Show the 12-month picture, not just the slow quarter. If you had a bad year in 2022, address it directly — here's what happened, here's what changed, here's why it won't happen again. If your industry is facing headwinds, acknowledge it and explain your positioning.
When you give your banker clear, honest explanations for potential risk factors, you're essentially writing the mitigants section for them. That makes their job easier and your approval more likely.
The loan narrative — your most underused tool
Some banks ask for it formally. Others don't mention it at all. But a well-written loan narrative — a one to two page document that explains your business, the purpose of the loan, and your plan for repayment — is one of the most powerful things you can submit.
Write it in plain English. Explain what the business does, why it's successful, what the loan is for, and how you'll repay it. Address any obvious risks head on. Keep it to two pages maximum.
Most businesses don't submit one. The ones that do immediately stand out.
Next issue: The loan package — exactly what to include and how to present it so your file stands out from day one.
— The Credit Desk