Credit & Lending Glossary

A credit memo (or credit memorandum) is a formal document prepared by a lender that summarises a borrower's financial health, risk profile, and the lender's recommendation to approve, decline, or conditionally approve a loan. It is the core output of the credit underwriting process and serves as the official record for credit committee review.

Financial spreading is the process of extracting and standardising financial data from a borrower's statements — income statements, balance sheets, and cash-flow statements — into a consistent format for credit analysis. It is one of the most time-consuming steps in commercial loan underwriting, typically taking 2–4 hours per borrower when done manually.

DSCR (Debt Service Coverage Ratio) is a financial metric used in commercial lending to measure a borrower's ability to repay debt. It is calculated by dividing net operating income (NOI) by total annual debt service (principal + interest). A DSCR above 1.25x is typically required by lenders, meaning the borrower generates 25% more income than needed to cover debt payments.

Credit analysis is the process a lender uses to evaluate a borrower's ability and willingness to repay a loan. It examines financial statements, cash flows, collateral, industry risk, and management quality to determine creditworthiness and appropriate loan terms. For commercial loans, credit analysis typically culminates in a credit memo presented to a credit committee.

Credit underwriting is the full process by which a lender evaluates a loan application — from collecting and analysing financial documents to making a credit decision. It encompasses financial spreading, credit analysis, due diligence, risk assessment, and credit memo preparation. Traditional commercial underwriting takes days to weeks; AI-powered underwriting can compress this to minutes.