Quick answer
A credit paper is a structured document used in commercial banking to assess a borrower, a proposed loan and the risks involved, so that a person or committee with delegated lending authority can decide whether the lending should be approved, approved with conditions, restructured, deferred or declined. It sets out who the borrower is, how the debt will be repaid, what could prevent repayment and how the loan should be structured to manage that risk.
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 on one document: the credit paper.
A well-written credit paper gives the decision-maker confidence. A poorly written one creates uncertainty, regardless of how strong the customer may be.
In Australian commercial banking, a credit paper may also be referred to as a credit submission, credit application or credit memorandum, depending on the lender.
A credit paper typically explains
- Who the borrower is;
- What funding is required;
- How the debt will be repaid;
- The key risks and mitigants;
- The proposed facility structure and security; and
- The credit analyst’s recommendation.
Many people assume a credit paper is simply a summary of the borrower’s financial statements. In practice, the numbers are only the starting point. The credit analyst must explain the business, assess repayment, identify the risks and recommend a lending structure that makes sense.
What is the purpose of a credit paper?
The central purpose of a credit paper is to help the relevant decision-maker answer one question:
Should the lender support the proposed transaction, and if so, on what terms?
Commercial lending decisions cannot be based solely on a financial ratio, available security or reported profit. The lender needs to understand the complete transaction: who the borrower is, how the business generates cash, why the funding is required, how the proposed debt will be repaid, what could prevent repayment, how the identified risks will be managed, whether the proposed facilities, tenor and repayment profile are appropriate, and whether the transaction aligns with the lender’s credit policies and risk appetite.
The credit paper brings these elements together into one logical assessment, so the relevant decision-maker can understand the transaction without independently re-reading every financial statement, supporting document and piece of background information.
In practice
A well-prepared credit paper supports faster, better-informed credit decisions because the material is presented clearly, logically and with an appropriate level of analysis. Credit Analyst Academy’s Final Credit Paper Assessment is built around this same standard, turning financial analysis, credit-risk assessment and knowledge of the client’s business into a structured, decision-ready recommendation.
Who prepares and reviews a credit paper?
Depending on the lender’s operating model, a credit paper may be prepared by a credit analyst, a relationship manager, a business or commercial banker, a credit manager, a portfolio analyst, or another member of a lending or relationship team.
In many commercial banking teams, the relationship manager originates the opportunity and gathers information about the client, while the credit analyst undertakes the detailed financial analysis, assesses the risks and helps structure the proposed facilities. The completed paper is then reviewed by the relevant person or committee with delegated lending authority. Depending on the lender, this may be a Credit Manager, Risk Executive, Senior Credit Officer, Credit Committee or another equivalent credit decision-making role. Job titles and approval structures vary between lenders.
Quick tip: who does what
Relationship manager: originates the opportunity, gathers customer information and manages the ongoing relationship.
Credit analyst: performs the financial analysis, assesses repayment and risk, and helps structure the recommendation.
The paper needs to communicate across both the relationship and risk functions. It should explain the commercial rationale for supporting the customer while staying objective about the risks to the lender. If you’re weighing up credit analysis as a career rather than just preparing for a specific transaction, see our guide: How to Become a Credit Analyst in Australia.
What happens after a credit paper is submitted?
The credit paper sits inside a broader approval workflow, not as a standalone document:
- The relationship team gathers information and defines the request.
- The credit analyst assesses the borrower, repayment and risks.
- The proposed structure is documented in the credit paper.
- The paper is reviewed by a person or committee with delegated lending authority.
- The request is approved, approved with conditions, restructured, deferred or declined.
- Any approval conditions must be satisfied before funding.
When is a credit paper required?
A credit paper may be prepared for a range of commercial lending decisions, including:
- A new lending application;
- An increase or change to existing facilities;
- The refinancing of debt from another lender;
- Funding for a business acquisition;
- Working capital or trade-finance facilities;
- Equipment or asset finance;
- Commercial property lending;
- A change in ownership or business structure;
- An annual review of existing facilities;
- A covenant breach or deterioration in financial performance; or
- The restructuring of existing debt.
The amount of analysis required depends on the size, complexity and risk profile of the transaction. A straightforward annual review may only need an update on recent performance, facility conduct and outlook. A larger acquisition or highly leveraged transaction typically needs detailed historical and forecast analysis, downside scenarios, industry assessment, covenant recommendations and a closer look at the sources of repayment.
Example
A straightforward annual review for an existing $500,000 overdraft facility with a strong conduct history may need only a short update on recent trading and facility performance. A $15 million acquisition funded largely by debt would typically require detailed historical and forecast analysis, a downside scenario, industry assessment and a closer look at post-acquisition repayment capacity.
What does a credit paper typically include?
Every lender uses its own template, but most commercial credit papers cover eight broad areas. A companion article, How to Write a Credit Paper: Structure and a Practical Worked Example, walks through each of these in more depth with a worked example.
1. Executive summary and recommendation
The summary states the borrower, existing and proposed facilities, purpose, limits, term, pricing, security, key financial metrics, Probability of Default and Loss Given Default, and the overall recommendation, enough for a decision-maker to understand the shape of the transaction before reading the detailed analysis.
2. Borrower and business overview
The credit analyst should explain who the borrower is, how the business operates and generates cash, the ownership and management structure, and the industry conditions it operates in. This is where customer concentration, seasonal trading, key-person reliance or succession risk should be surfaced, not just reproduced from the client’s website.
One of the most common mistakes we see is credit analysts spending pages describing the business without ever explaining how it generates the cash flow that will ultimately repay the debt. New credit analysts, in particular, often spend pages describing an industry but never connect it back to the borrower’s ability to service the debt.
Example
Rather than simply noting that a customer “operates in the construction industry,” a stronger overview would explain that the borrower supplies specialised components to three large infrastructure builders under multi-year contracts, meaning revenue is relatively predictable but concentrated in a small number of customers, a point the paper should return to in its risk assessment.
3. Transaction purpose and proposed facilities
The paper should clearly explain what the borrower needs, why the funding is required now, whether the amount is reasonable, and whether the proposed facility type suits the purpose. Short-term working capital should not be funded the same way as a long-term property purchase or acquisition.
4. Historical and forecast financial analysis
The credit analyst should assess the Statement of Profit or Loss, Statement of Financial Position and Statement of Cash Flows, explaining why performance has changed and whether earnings are converting into sustainable operating cash flow. Where forecasts matter to the decision, the credit analyst should test the underlying assumptions and run a downside scenario, rather than accepting management’s projections at face value.
Example
A borrower’s reported profit has grown steadily, but a closer look at the Statement of Cash Flows shows that working capital has absorbed most of that growth in cash terms. The credit analyst should explain this gap between profit and cash rather than simply reporting the profit figure.
5. Repayment assessment
Repayment is the central question in the paper. The credit analyst should clearly separate the sources of repayment:
Primary
Usually sustainable operating cash flow, assessed through debt servicing and cash flow analysis.
Secondary
Security, guarantees or asset realisation if the primary source fails.
Fallback / exit
Refinancing, asset sale or another defined event, where relevant to the facility.
Strong security does not compensate for the absence of a credible primary source of repayment.
6. Key risks and mitigants
Every transaction carries risk: customer concentration, weak liquidity, high leverage, key-person reliance, industry volatility or forecast uncertainty among them. The credit analyst should state how significant each risk is, how likely it is to arise, and how it affects repayment, then propose a mitigant that directly addresses it.
Watch for this
Generic statements such as “the relationship will be closely monitored” are rarely sufficient without explaining what will be monitored, how frequently, and what action follows if performance deteriorates.
7. Structure, security and covenants
Good structuring aligns the loan with the purpose of the funding and the borrower’s cash flow: facility type, limit, term, repayment profile, pricing, covenants and reporting conditions. The credit analyst should also assess the security available, its ownership, encumbrances and expected recovery, and consider Loss Given Default alongside the borrower’s Probability of Default.
Example
A five-year term loan funding a long-life asset would generally be structured with a repayment profile matched to the asset’s useful life, rather than a short-term facility that leaves the borrower needing to refinance well before the asset has paid for itself.
8. Credit policy and final recommendation
The credit analyst should confirm whether the transaction complies with the lender’s credit policy and risk appetite, and flag any exception clearly rather than leaving it for the decision-maker to find. The paper should then close with a clear recommendation: approve, approve with conditions, restructure the proposed facilities, defer pending further information, or decline. That recommendation should follow logically from everything discussed above.
A worked example
Example: working capital facility
A wholesaler seeks a $2 million working-capital facility after revenue growth places pressure on receivables and inventory. The business is profitable, but operating cash flow has weakened as working capital has expanded. The credit analyst must determine whether the requirement is genuinely short term, whether the proposed limit is reasonable, and whether the facility should reduce as cash is collected.
Purpose
Working-capital funding.
Repayment
Customer collections and operating cash flow.
Risks
Debtor concentration and increasing inventory.
Structure
Revolving facility, reporting requirements and appropriate covenants.
Recommendation
Support the transaction, subject to the identified risks being adequately mitigated.
This is what a credit paper actually does: it connects a funding request to a repayment source, tests the risks around that source, and structures the facility to manage them.
What makes a strong credit paper?
A strong credit paper is not necessarily the longest or most detailed. It is the one that gives the decision-maker the information and analysis needed to decide.
In practice
In our experience, many credit papers sent back for rework are not returned because the financial ratios are fundamentally wrong. They are more often returned because the analysis does not clearly explain repayment, risk or why the requested structure makes sense.
It tells a coherent credit story
The sections should connect: the business model should explain the financial performance, the financial performance should inform the repayment assessment, and the risks should shape the proposed structure and covenants. When sections are prepared in isolation, the paper reads like a collection of facts rather than a recommendation.
It distinguishes facts from analysis
Fact
Revenue increased by 12% during the year.
Analysis
Revenue increased by 12%, primarily due to two new customer contracts. However, those customers now account for a significant proportion of total sales, increasing concentration risk.
The credit analyst’s value lies in interpreting information, identifying relationships and explaining the credit implications, not in restating what is already in the financial statements.
It focuses on material issues
A good credit analyst identifies the matters most likely to influence repayment and gives them prominence. Minor details should not obscure a weak cash position, aggressive forecasts, significant customer concentration or a material refinancing requirement.
It is balanced
A credit paper is neither a sales document nor an argument for declining the customer. It should fairly present the strengths, the weaknesses, the key risks, the available mitigants and the rationale for the recommendation.
Common misconception
A good credit paper argues in favour of the customer, or plays it safe by highlighting every possible risk.
Correct approach
A good credit paper presents the transaction objectively, so that a decision-maker unfamiliar with the customer could reach the same conclusion based on the evidence presented.
It is concise and decision-ready
Senior decision-makers review many transactions in limited time. Clear headings, logical sequencing and a strong executive summary make the paper easier to assess.
We’ve reviewed credit papers with more than 100 pages of supporting documents attached, yet the repayment source was never clearly explained. The strongest papers are rarely the longest. They’re the ones that help the decision-maker understand the transaction quickly and confidently.
Common mistakes in credit papers
Repeating information without analysing it
Copying details from financial statements or the borrower’s business plan does not demonstrate credit analysis. Explain the significance of the information and its effect on the recommendation.
Focusing on profit but overlooking cash flow
A profitable business can still face repayment pressure if cash is tied up in receivables, inventory or capital expenditure.
Treating security as the primary reason to lend
Commercial lending should ordinarily be supported by a credible primary source of repayment, not the expectation of enforcement.
Listing risks without addressing them
A list adds little value unless it also explains how significant each risk is, how likely it is, and whether it can be mitigated.
Using generic mitigants
“Experienced management” or “ongoing monitoring” are not substitutes for explaining how a mitigant reduces the specific risk identified.
Accepting forecasts without challenge
Forecasts reflect management’s view of the future. Test the assumptions before relying on them.
Making an unclear recommendation
State the requested facilities, structure, conditions and supporting rationale clearly. Don’t make the reader infer it.
A simple way to think about the credit paper
A practical credit paper should answer five questions:
- Who is the borrower and how does the business generate cash?
- What funding is required and why?
- How will the debt be repaid?
- What are the key risks and how are they being managed?
- Does the proposed structure make sense, and should the lender support it?
If these questions are not answered clearly, the paper is unlikely to be decision-ready.
Frequently asked questions
Is a credit paper the same as a credit submission?
Usually, yes. Terminology differs between lenders.
Who writes a credit paper?
It may be prepared by a credit analyst, banker, relationship manager or another member of the lending team.
What is the difference between a credit paper and a loan application?
A loan application requests funding. A credit paper analyses the request and makes a recommendation to the lender’s decision-maker.
How long is a credit paper?
It depends on the size, complexity and risk of the transaction. Quality is determined by relevance and analysis, not length.
What is the most important part of a credit paper?
The repayment assessment, supported by a balanced analysis of risks, structure and mitigants.
How do you learn to write a credit paper?
Credit writing is developed through practice. A credit analyst needs to understand financial statements, cash flow and working capital, repayment analysis, forecasting and sensitivity testing, business and industry risk, Probability of Default, Loss Given Default, covenants, security, loan structuring and the lender’s credit policies.
Technical knowledge alone is not enough. The credit analyst must also apply judgement, identify the material issues and communicate a recommendation clearly.
Credit Analyst Academy
CAA’s course follows a structured progression from financial-analysis and credit-risk foundations through to applied lending scenarios and professional credit writing, culminating in the Final Credit Paper Assessment. Participants prepare a complete three-way financial model, produce a professional credit paper designed to reflect real commercial lending work, and present a clear, structured credit recommendation, considering financial performance, forecast resilience, loan structuring, covenants, security, Probability of Default and Loss Given Default along the way.
Unlike many training courses that focus primarily on financial statement analysis, commercial lenders ultimately assess the quality of the lending recommendation. That’s why our course culminates in preparing a complete credit paper built around real commercial lending practice, using the same thought process applied inside Australian banks.
What we see in practice
Across our careers in Australian commercial banking, we’ve reviewed credit papers ranging from straightforward annual reviews to complex multi-million-dollar transactions. The strongest papers all have one thing in common: they explain why the loan should be supported, not simply what the customer has requested.
That ability to connect financial analysis, repayment, risk and loan structure into one clear recommendation is what separates a credit analyst from someone who simply summarises information.
Before you submit a credit paper, ask yourself
- Does the recommendation make sense?
- Have I clearly explained repayment?
- Have I analysed the information rather than just described it?
- Have I addressed the major risks, not just listed them?
- Would someone unfamiliar with the customer approve this loan based only on my paper?
Final thoughts
A credit paper is much more than a document. It is where financial analysis, commercial judgement and lending structure come together to support one decision.
Should the lender approve the transaction?
Learning to answer that question clearly, by bringing together the borrower’s business, financial performance, repayment capacity, risks, facility structure, security and relevant credit-policy considerations, is one of the defining skills of a commercial credit analyst.
The strongest papers do not simply contain more information. They identify what matters, explain why it matters and connect each part of the assessment to a clear recommendation. Preparing one well demonstrates not only that you can analyse financial information, but that you can apply judgement, structure a transaction and communicate your reasoning in a form a lender can rely on.
Key takeaways
- A credit paper supports commercial lending decisions.
- Its purpose is to assess repayment and risk.
- Good credit papers explain, rather than simply describe.
- Strong recommendations combine financial analysis with commercial judgement.
- Learning to prepare a professional credit paper is a core skill for commercial credit analysts.
Develop the practical credit analysis skills used by commercial lenders
The Credit Paper module brings together the financial analysis, risk assessment and commercial judgement developed throughout the course into a credit recommendation designed to reflect real commercial lending work, with guidance from experienced Australian bankers.
Read the companion guide: How to Write a Credit Paper
Also useful: the course FAQs, including what credit analysis involves and how assessments are reviewed.
