Credit Memo
A credit memo is the internal document a lender's team prepares to recommend approving or declining a loan. It summarizes the borrower, the property, the loan terms and the underwriting, including debt service coverage, loan-to-value and debt yield, and it explains the risks and how the loan structure addresses them.
Why a credit memo matters
The credit memo is the record of why a loan was made. Credit committees rely on it to approve loans, examiners review it to judge the lender's practices, and asset management teams return to it when the loan needs attention.
A strong credit memo ties every conclusion to evidence. It shows how net operating income was built, why the valuation is reasonable, how the loan performs under stress, and which covenants and reserves protect the lender.
Preparing credit memos is one of the most time-consuming parts of lending, because the memo must stay consistent with the underwriting model as terms change.
Credit Memo vs. Term Sheet
A term sheet goes to the borrower and sets out the proposed loan terms. A credit memo stays inside the lender and explains why those terms are prudent. The term sheet is usually issued before final approval, and the credit memo supports that approval.
How Smart Capital Center handles credit memos
Smart Capital Center's AI agents draft credit memos from the underwriting data, with every figure traceable to its source document. Credit teams edit the draft and make the decision. KeyBank Real Estate Capital reduced financial model preparation time by 40% with Smart Capital Center.
Frequently asked questions
What is included in a commercial real estate credit memo?
Most credit memos include a loan summary and recommendation, borrower and sponsor analysis, a property and market overview, underwriting of income and expenses, the valuation, debt service coverage, loan-to-value and debt yield, stress testing, covenants and reserves, and a summary of risks and mitigants.
Who approves a credit memo?
The credit memo goes to the lender's approval authority, which depends on loan size and the lender's policy. Smaller loans may be approved by individual credit officers, while larger loans go to a credit committee. Exceptions to policy are usually flagged in the memo and approved separately.
How does a credit memo differ from an IC memo?
A credit memo supports a lending decision and focuses on whether the loan will be repaid and whether the collateral protects the lender. An IC memo supports an investment decision and focuses on the returns an equity investor can expect. Both rely on the same property underwriting.