Quick answer
A commercial credit paper is structured around a consistent set of questions: who the borrower is, what they’re requesting, how the debt will be repaid, what the key risks are and why the proposed structure is appropriate. Most lenders follow a similar sequence: Executive Summary → Customer Overview → Lending Request → Financial Analysis → Repayment Capacity → Risks → Structure → Security → Conditions → Recommendation.
This guide walks through each section using a single worked example (a $2 million commercial property loan) so you can see how the analysis connects from one section to the next.
Every day, commercial lenders make decisions on loans worth millions of dollars. The person approving the lending may not have met the customer, visited the business or reviewed every financial statement in detail. Instead, they rely heavily on one document: the credit paper.
A strong credit paper gives the decision-maker confidence that the transaction has been properly assessed. It explains the customer, the purpose of the lending, how the debt will be repaid, the key risks and why the proposed structure is appropriate. A weak credit paper creates uncertainty, even when the underlying customer is financially strong.
Writing a good credit paper is therefore not simply an administrative task. It is a core commercial lending skill. This article explains how to structure one and works through a practical lending example from start to finish. If you haven’t already, it’s worth first reading our companion guide, What Is a Credit Paper?, which covers what a credit paper is and why lenders use one. This article picks up from there and focuses on how to actually write one.
What is a credit paper?
A credit paper is a structured document that presents the analysis and credit recommendation to a person or committee with delegated lending authority. It brings together the relevant information about the borrower, the proposed facilities, the financial analysis, repayment capacity and proposed repayment structure, the risks, the security position and the credit analyst’s recommendation.
A credit paper should answer several fundamental questions:
- Who is the borrower?
- What is the customer requesting?
- Why do they need the lending?
- How will the debt be repaid?
- What are the key risks?
- How are those risks being managed?
- Is the proposed lending structure appropriate?
- What is the basis for supporting or declining the request?
The purpose of the credit paper is not to reproduce every piece of information provided by the customer. Its purpose is to identify what matters, analyse it and present a clear credit recommendation. For a fuller discussion of who prepares a credit paper, when one is required and what it typically contains, see What Is a Credit Paper?
What makes a strong credit paper?
A strong credit paper is clear, analytical and balanced. It does not simply state that the customer has strong financials, good account conduct or experienced management. It explains why those factors matter and how they support the lending decision.
Weaker
The business has strong cash flow.
Stronger
After adjusting for a $100,000 one-off insurance receipt, the business generated normalised EBITDA of $1.1 million in FY25, compared with total annual debt commitments of approximately $380,000. This indicates adequate repayment capacity, subject to further assessment of cash tax, capital expenditure and working-capital requirements.
The second statement is more useful because it connects the financial performance to the proposed lending. Good credit writing consistently links facts to their credit implications. That single habit does more to lift the quality of a credit paper than any amount of extra formatting.
Information to gather before writing
Before preparing the credit paper, the credit analyst should understand the transaction as a whole. This normally requires reviewing:
- The customer’s lending request;
- The purpose of the facilities;
- The ownership and legal structure;
- Historical financial statements;
- Current management accounts;
- Financial forecasts;
- Existing and proposed debt;
- The proposed repayment terms;
- Security information;
- Account conduct;
- The customer’s industry and operating environment;
- Any related entities, guarantors or trusts;
- Existing covenant compliance, where applicable;
- The source of the customer’s contribution; and
- Material risks or adverse information.
The credit analyst should also identify any gaps in the information before beginning the detailed assessment. A credit paper becomes difficult to write when the credit analyst does not yet understand the transaction. Most poorly written credit papers are information problems in disguise.
Recommended credit paper structure
The exact format will vary between lenders, but most commercial credit papers contain the following sections. To make each one concrete, we’ll work through a single example throughout: a proposed $2 million commercial property loan to ABC Manufacturing Pty Ltd, a fictional but realistic manufacturing business.
A note on this example
ABC Manufacturing Pty Ltd and its figures are illustrative, created to demonstrate how the sections of a credit paper connect to one another. They are simplified for teaching purposes and should not be treated as a template to copy directly. A real credit paper involves more detailed analysis, additional supporting information and lender-specific policy requirements.
1. Executive summary and recommendation
The executive summary should give the decision-maker a concise overview of the transaction. It should explain who the customer is, what facilities are being requested, the purpose of the lending, the proposed term and repayment structure, the primary source of repayment, the key strengths, the key risks and the credit recommendation.
The credit recommendation should be clear from the beginning. A decision-maker should not need to read several pages before understanding what is being proposed.
Example
Support is recommended for a $2 million commercial property loan to ABC Manufacturing Pty Ltd to assist with the purchase of its owner-occupied premises. The proposed facility will be repaid over 15 years through monthly principal and interest repayments. The primary source of repayment will be cash flow generated by the manufacturing business.
The business has demonstrated consistent profitability, with FY25 EBITDA of $1.2 million and adequate capacity to meet the proposed debt commitments. Key risks include customer concentration and exposure to raw material price movements. These risks are partly mitigated by long-standing customer relationships, diversified suppliers and satisfactory forecast repayment capacity under the downside scenario.
Accordingly, approval of the proposed facilities is recommended on the terms outlined in this paper.
This summary allows the decision-maker to understand the transaction before moving into the detail.
2. Customer and business overview
This section should explain who the customer is and how the business operates: business activities, trading history, ownership, management experience, legal structure, key products or services, customers and suppliers, industry position, related entities and recent strategic developments. Keep it concise; avoid background information that has no effect on the lending assessment.
Example
ABC Manufacturing Pty Ltd was established in 2012 and manufactures specialised components for the construction and infrastructure sectors. The company is owned equally by directors Sarah Lee and Michael Tran, who each have more than 15 years of industry experience. Sarah oversees finance and operations, while Michael is responsible for production and customer relationships.
The business currently operates from leased premises in Western Sydney and employs 24 staff. Its five largest customers represent approximately 52% of annual revenue.
That final sentence is particularly important. It introduces a potential concentration risk that gets picked up and analysed properly later in the paper. A well-written overview plants the seeds for the risk assessment to come.
3. Lending request and purpose
The credit paper should clearly explain what the customer is requesting and why: the amount of each facility, the type of facility, the purpose, the term, the proposed repayments, any customer contribution, the total transaction cost and any existing debt being refinanced.
Example
ABC Manufacturing is purchasing an industrial property for $3 million. The proposed funding structure is:
| Source of funding | Amount |
|---|---|
| Proposed commercial property loan | $2,000,000 |
| Customer contribution | $1,000,000 |
| Property purchase price | $3,000,000 |
The company is requesting a 15-year principal and interest loan. The customer contribution will be funded from existing cash reserves. Stamp duty, legal fees and valuation costs are additional to the purchase price and will also be funded from the customer’s own cash reserves. These should be confirmed so the total funding requirement is fully understood before drawdown.
It is important to verify the source of the contribution and determine whether using those funds will place pressure on working capital, a point this paper returns to in the balance sheet and risk sections below.
4. Financial analysis and repayment capacity
This is one of the largest and most important parts of the credit paper. It should go beyond describing movements in revenue and profit and establish, with evidence, whether the business generates enough sustainable cash flow to meet its debt commitments.
Strong credit analysis combines financial analysis with professional judgement. Two businesses with similar financial results may still present very different credit risks depending on management quality, industry conditions and transaction structure.
Historical financial analysis
The credit analyst should explain what changed, why it changed, whether the result is sustainable, and how it affects the borrower’s repayment capacity, commonly across revenue, gross profit and margin, operating expenses, EBITDA, net profit, working capital, leverage, liquidity, cash flow, capital expenditure and shareholder or director transactions.
Example: ABC Manufacturing’s results
| Financial year | FY23 | FY24 | FY25 |
|---|---|---|---|
| Revenue | $7.2m | $7.8m | $8.5m |
| Gross profit | $2.9m | $3.1m | $3.5m |
| EBITDA | $900k | $1.0m | $1.2m |
| Net profit after tax | $510k | $580k | $700k |
Weaker
Revenue and profit increased over the three-year period.
Stronger
Revenue increased from $7.2 million in FY23 to $8.5 million in FY25, representing growth of approximately 18% over the period. Growth was primarily driven by increased orders from infrastructure customers and the introduction of a new product line in FY24.
EBITDA increased from $900,000 to $1.2 million, while the EBITDA margin improved from 12.5% to 14.1%. The improvement reflects stronger production volumes and better absorption of fixed manufacturing costs.
The earnings trend is positive. However, approximately 28% of FY25 revenue was generated from the largest customer, creating a level of customer concentration risk.
That stronger version does two jobs at once: it identifies the positive trend and immediately flags the risk sitting behind it.
Normalisation of earnings
Reported profit does not always reflect the sustainable cash earnings available to repay debt. The credit analyst may need to adjust for depreciation, interest, one-off income or expenses, non-commercial director remuneration, related-party expenses, gains or losses on asset sales, unusual legal or restructuring costs, or non-recurring government grants. Adjustments should be supported by evidence and applied conservatively.
Example
ABC Manufacturing reported EBITDA of $1.2 million in FY25. The financial statements included a one-off insurance receipt of $100,000 relating to damaged equipment.
| Calculation | Amount |
|---|---|
| Reported EBITDA | $1,200,000 |
| Less: one-off insurance receipt | ($100,000) |
| Normalised EBITDA | $1,100,000 |
The credit paper should use normalised earnings when assessing sustainable repayment capacity. The credit analyst should not add back expenses simply to make the transaction appear stronger. Every adjustment should have a clear rationale that would hold up under scrutiny.
Cash flow and debt repayment capacity
The credit analyst must determine whether the borrower can meet interest payments, scheduled principal repayments, tax obligations, working capital requirements, essential capital expenditure, distributions or drawings, and other debt commitments. EBITDA is a starting point, not the answer. The credit analyst must demonstrate how accounting earnings translate into cash available to repay debt.
The proposed $2 million facility is assumed to carry a 6.5% interest rate on a 15-year principal and interest amortisation profile, producing annual repayments of around $210,000. The business also has existing equipment finance commitments of $170,000 per year, bringing total annual debt commitments to approximately $380,000.
Example: simplified repayment cash-flow bridge (FY25)
| Item | Amount |
|---|---|
| Normalised EBITDA | $1,100,000 |
| Less: estimated cash tax | ($220,000) |
| Less: maintenance capital expenditure | ($120,000) |
| Less: normalised working-capital requirement | ($100,000) |
| Cash available for debt repayment | $660,000 |
| Total annual principal and interest commitments | ($380,000) |
| Indicative cash surplus | $280,000 |
This simplified bridge shows that after tax, maintenance capital expenditure and working capital are deducted from normalised EBITDA, the business still has an estimated surplus of $280,000 over its total debt commitments, before the further stress applied in the downside scenario below.
For simplicity, cash tax is presented as an assumed amount in this worked example rather than a full taxable-income calculation.
Key takeaway
A lender is not repaid from accounting profit. They are repaid from sustainable cash flow after tax, capital expenditure, working capital and existing debt commitments.
Historical cash flow has generally been positive, although debtor days increased from 42 days to 51 days in FY25. Continued growth may require additional working capital, particularly where customer payment terms extend beyond supplier terms.
That bridge shows the credit analyst has looked past the headline profit figure into what actually funds repayment.
Balance sheet analysis
The balance sheet provides important information about liquidity, leverage and financial resilience: cash, trade debtors, inventory, current liabilities, net assets, related-party loans, existing borrowings, asset quality and contingent liabilities. Particular attention should be given to whether assets can be converted into cash and whether liabilities are fully recognised.
Example
The company reported net assets of $2.4 million at FY25, including cash of $1.6 million, trade debtors of $1.1 million and inventory of $900,000.
Liquidity is considered acceptable, although a significant portion of current assets is tied up in debtors and inventory. The proposed $1 million contribution will reduce available cash and may increase reliance on the working capital cycle. The customer has indicated that at least $400,000 of cash will remain in the business after settlement. This should be verified before drawdown.
Forecasts and sensitivity analysis
Forecasts should not be accepted without challenge. The credit analyst should assess whether the assumptions are reasonable, consistent with historical performance, whether revenue growth is supported, whether margins are achievable, whether working capital and capital expenditure have been forecast, and whether downside scenarios have been tested.
For ABC Manufacturing, management forecasts FY26 revenue of $9.2 million and EBITDA of $1.3 million. The credit analyst should consider whether this is achievable, particularly where the business is also moving premises and taking on additional debt.
Base-case assessment
The FY26 forecast assumes revenue growth of 8.2% and an EBITDA margin of 14.1%, broadly consistent with FY25. The assumptions appear achievable based on current orders and historical growth, although some disruption may occur during the relocation.
A downside scenario could assume revenue declines by around 10%, gross margin reduces by 2%, operating expenses remain largely fixed and debtor collections slow. While slower collections place pressure on cash flow, the lower level of sales and inventory reduces the overall working-capital requirement, resulting in a modest net working-capital release in this example. The credit paper should explain whether the business can still meet its commitments under those conditions.
Base case versus downside scenario
| Item | Base case (FY26F) | Downside scenario |
|---|---|---|
| Revenue | $9.2m | $8.3m |
| EBITDA | $1.3m | $650k |
| Less: estimated cash tax | ($260k) | ($130k) |
| Less: maintenance capital expenditure | ($120k) | ($120k) |
| Working capital movement | ($150k) | $40k |
| Cash available for debt repayment | $770k | $440k |
| Annual debt commitments | ($380k) | ($380k) |
| Surplus / (shortfall) | $390k | $60k |
Base case versus downside scenario
Under the downside scenario, EBITDA reduces to approximately $650,000. Although slower debtor collections place some pressure on cash flow, this is offset by the lower level of sales and inventory, resulting in a modest net working-capital release. The business retains an estimated surplus of approximately $60,000 over its debt commitments: a materially tighter position than the base case, but not a shortfall.
This indicates the transaction remains supportable under moderate stress, but the borrower would have limited capacity to absorb a more severe or prolonged decline. Sensitivity analysis helps the decision-maker understand what could go wrong and how much financial headroom is available.
5. Key risks and mitigants
Every commercial lending transaction contains risk. The role of the credit analyst is not to pretend the risks do not exist. It is to identify them, assess their significance and determine whether they are appropriately managed. A useful risk section explains the nature of the risk, the possible impact, the likelihood, the mitigants and any residual concern.
Risk 1: Customer concentration
The largest customer represents approximately 28% of revenue. The loss of this customer would materially affect earnings and cash flow. This risk is partly mitigated by a trading relationship of more than eight years, recurring order volumes and the specialised nature of the products supplied. However, customer concentration remains a material risk and should continue to be monitored.
Risk 2: Property purchase reduces liquidity
The $1 million customer contribution will significantly reduce the company’s cash reserves. This is mitigated by forecast retained cash of at least $400,000, an established working capital facility and positive operating cash flow. Evidence of the remaining liquidity position should be obtained before settlement.
Risk 3: Exposure to raw material costs
The business is exposed to movements in steel and component prices, which may place pressure on gross margins. This is partly mitigated by the ability to reprice new contracts, the use of multiple suppliers and historical margin stability. Timing differences between cost increases and customer repricing remain a residual risk.
Watch for this
A mitigant should directly address the risk. General statements such as “experienced management” should not be used unless management experience genuinely reduces the specific risk being discussed.
6. Structure, security and covenants
Lending structure
A transaction may be supportable in principle but poorly structured. The proposed facilities should match the purpose of the borrowing, the life of the asset, the borrower’s cash flow, the level of risk and the expected repayment source. A long-term property purchase, for example, would generally be funded through a term loan rather than a short-term overdraft. The credit paper should explain why the proposed term, repayment profile and facility type are suitable.
Example
A 15-year principal and interest term is considered appropriate given the long-term nature of the property asset and the demonstrated cash flow of the business. Principal and interest repayments will progressively reduce the lender’s exposure. An interest-only structure is not considered necessary, as the business has adequate capacity to commence amortisation from drawdown.
Security and guarantees
Security is important, but it should not replace an assessment of repayment capacity. The primary source of repayment should normally be the cash flow generated by the borrower: security provides a secondary repayment source if the transaction does not perform as expected. This section may cover property mortgages, general security agreements, director guarantees, company guarantees, asset valuations, loan-to-value ratio, priority arrangements and insurance requirements.
Example
The proposed facility will be secured by a first registered mortgage over the industrial property, supported by a general security agreement over ABC Manufacturing Pty Ltd and joint and several guarantees from the directors. Based on the purchase price of $3 million, the initial loan-to-value ratio is approximately 67%.
The security position is considered acceptable. However, the credit recommendation is based primarily on the business’s demonstrated and forecast cash flow rather than reliance on property value.
Conditions and covenants
Conditions should address matters that must be resolved before or after approval: updated financial information, confirmation of customer contribution, valuation, evidence of insurance, executed guarantees, repayment of existing debt, legal due diligence, financial covenants and reporting requirements. Conditions should be specific and relevant.
Weaker
The borrower must maintain adequate liquidity.
Stronger
Before drawdown, obtain evidence that the customer contribution has been paid from the borrower’s own funds and that at least $400,000 of cash remains available for working capital after settlement.
Example financial covenant
Maintain a minimum Interest Cover Ratio (ICR) of 2.0x, tested annually based on the borrower’s year-end financial statements.
The covenant level should reflect the borrower’s historical and forecast performance and provide sufficient headroom to act as an early warning mechanism, rather than simply replicating current performance.
7. Final recommendation
The conclusion should bring the analysis together. It should confirm whether the transaction is supported, the basis for support, the key risks, why the risks are acceptable, and the facilities and conditions recommended.
Worked recommendation
Support is recommended for a $2 million commercial property loan to ABC Manufacturing Pty Ltd on a 15-year principal and interest basis.
The business has a demonstrated history of profitable trading, with normalised FY25 EBITDA of $1.1 million and adequate capacity to meet total annual debt commitments of approximately $380,000. The proposed property will support the company’s long-term operations and remove its reliance on leased premises. The initial loan-to-value ratio of approximately 67% is acceptable.
Key risks include customer concentration, exposure to raw material prices and reduced liquidity following payment of the customer contribution. These risks are considered manageable in light of the company’s trading history, established customer relationships, stable margins and forecast cash flow under the downside scenario.
Approval is recommended subject to satisfactory valuation, confirmation of the customer contribution, evidence of sufficient post-settlement liquidity and completion of the proposed security documentation. Accordingly, the proposed facilities are considered supportable on the terms outlined above.
Each lender has its own credit paper template and credit policy, but the underlying analytical principles remain remarkably consistent across commercial lending.
Common credit paper mistakes
Repeating information without analysing it
A credit paper should not simply reproduce the customer’s financial statements, business plan or application. The credit analyst must explain what the information means from a credit perspective.
Using vague language
Statements such as “strong business,” “good security” and “experienced management” are not enough. Support them with evidence.
Focusing only on security
A low loan-to-value ratio does not automatically make a transaction acceptable. The credit analyst must still establish how the debt will be repaid.
Ignoring working capital
A profitable business can still experience cash flow pressure if too much cash is tied up in debtors or inventory, particularly important for growing businesses.
Accepting forecasts without challenge
Management forecasts are not independent evidence. Test the assumptions against historical results, current trading and downside scenarios.
Listing risks without assessing them
A long list of risks does not demonstrate good credit analysis. Identify the material risks, explain their potential impact and assess the effectiveness of the mitigants.
Making the decision-maker search for the credit recommendation
The lending request and credit recommendation should be clear at the beginning and reinforced in the conclusion.
What we see in practice
Many credit papers sent back for rework are not returned because the numbers are fundamentally wrong. They are returned because the credit analyst has described the business without clearly demonstrating how the debt will be repaid. Once you’ve clearly demonstrated how the debt will be repaid, the rest of the paper tends to fall into place around it.
The strongest credit papers don’t just describe the transaction. They explain why the transaction should, or should not, be supported.
How to improve your credit writing
Strong credit writing develops through practice. Before finalising a credit paper, ask yourself:
Before you finalise
- Can the decision-maker understand the transaction quickly?
- Have I clearly explained how the debt will be repaid?
- Have I connected the financial analysis to the lending request?
- Have I identified the material risks?
- Do the mitigants directly address those risks?
- Have I challenged the forecasts?
- Is the proposed structure suitable?
- Is my recommendation clear and supported by evidence?
A good credit paper does not need to be unnecessarily long. It needs to contain the right information, supported by sound analysis and clear judgement. If you’re earlier in your career and want a broader view of the role itself (qualifications, skills and how to break in), see our guide, How to Become a Credit Analyst in Australia.
Frequently asked questions
What is the best structure for a credit paper?
Most lenders expect a similar core structure: an executive summary and recommendation, a customer and business overview, the lending request, financial analysis and repayment capacity (covering historical results, normalisation, cash flow, the balance sheet and forecasts), key risks and mitigants, the proposed structure together with security and covenants, and a final recommendation. The exact template varies by lender, but this sequence covers what decision-makers expect to see.
How long should a credit paper be?
Length depends on the size and complexity of the transaction. A straightforward annual review may only need a few pages, while a complex acquisition or highly leveraged deal may need considerably more. Quality is judged by relevance and analysis, not page count.
What is the most important section of a credit paper?
The assessment of debt repayment capacity. Security, structure and covenants all matter, but the credit paper ultimately needs to demonstrate how and why the debt will be repaid.
Do all lenders use the same credit paper format?
No. Templates and terminology vary between banks and non-bank lenders. However, the underlying questions a credit paper needs to answer (who the borrower is, why they need the funding, how it will be repaid, what the risks are and what is recommended) are consistent across the industry.
How do I get better at writing credit papers?
Practice on real or realistic transactions, seek feedback from experienced credit professionals or mentors such as senior credit analysts, relationship managers, credit managers or risk managers, and consciously connect every fact to its credit implication rather than simply describing information. Structured training and worked examples, like the one in this article, help build that habit faster than reading policy documents alone.
Final thoughts
Writing a commercial credit paper is not simply about presenting numbers. It requires the credit analyst to understand the customer, assess the financial position, test the repayment strategy, identify the risks and form a reasoned recommendation.
The strongest credit papers make it easier for the decision-maker to understand the transaction and reach an informed conclusion. That is the difference between summarising a lending request and performing genuine credit analysis.
Credit Analyst Academy
At Credit Analyst Academy, participants learn how to analyse commercial lending transactions, assess repayment capacity, identify key risks and prepare a structured commercial credit submission based on practical lending scenarios, culminating in a Final Credit Paper Assessment in which participants build their own supporting financial model and receive feedback from experienced Australian bankers.
Key takeaways
- A credit paper is structured around a consistent set of questions, not a fixed template.
- Every section should connect facts to their credit implications, not just describe them.
- Repayment capacity is generally the primary focus of the credit assessment; security provides an important secondary source of repayment.
- Forecasts should be tested with a downside scenario, not accepted at face value.
- A clear, well-supported credit recommendation is what separates a strong credit paper from a summary.
Learn to write practical commercial credit papers
Credit Analyst Academy takes the concepts introduced in this guide further. Participants analyse a complete commercial lending case, build the supporting financial model and prepare a professional credit paper designed to reflect real commercial lending work, with guidance and feedback from experienced Australian commercial bankers.
Read the companion guide: How to Become a Credit Analyst in Australia
Also useful: the course FAQs, including how assessments are reviewed and what feedback you receive.
