Definition
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.
Frequently asked questions
- What is credit analysis?
- Credit analysis is the evaluation process lenders use to determine whether to extend credit to a borrower and on what terms. It involves analysing financial statements, calculating ratios (DSCR, leverage, liquidity), assessing collateral, and evaluating industry and management risk.
- What does a credit analyst do?
- A credit analyst reviews borrower financial documents, spreads financial statements, calculates key ratios, assesses repayment capacity and risk, and prepares a credit memo recommending approval, denial, or conditional approval of a loan.
- What is AI credit analysis?
- AI credit analysis uses artificial intelligence to automate financial spreading, ratio calculation, risk assessment, and credit memo generation. Platforms like Crediflow can process financial documents and produce a complete credit analysis in under 10 minutes — work that previously took credit analysts 4–8 hours.
- What are the 5 Cs of credit analysis?
- The 5 Cs of credit analysis are: Character (borrower's credit history and reputation), Capacity (ability to repay based on cash flow), Capital (net worth and financial reserves), Collateral (assets pledged as security), and Conditions (loan purpose and market environment).
- What software do credit analysts use?
- Credit analysts use financial spreading software, credit memo tools, LOS (Loan Origination Systems), and increasingly AI credit analysis platforms like Crediflow that automate document ingestion, financial analysis, and memo generation — replacing manual spreadsheet work.
- How is AI changing credit analysis?
- AI is automating the most time-consuming parts of credit analysis — document processing, financial spreading, and initial memo drafting — reducing turnaround from days to minutes. AI also improves consistency by applying the same analysis framework to every deal, eliminating analyst variability.