For SBA lenders
Short answer
A lender documents adherence to prudent lending standards in the credit memo by providing a comprehensive analysis of the borrower's character, capacity, capital, collateral, and economic conditions. It must clearly justify the credit decision, identify risks, and outline mitigants.
The credit memo serves as the lender's primary documentation for its underwriting decision. For SBA loans, it must demonstrate that the lender applied the same sound lending practices as for its non-guaranteed loans. This involves a detailed discussion of all aspects of the credit, aligning with SBA's expectations for responsible lending.
In the credit memo for a $1 million 7(a) loan, the lender details the borrower's strong management team, 20% equity injection, projected debt service coverage of 1.5x, and collateral securing 90% of the loan. It also identifies industry-specific risks but explains how the borrower's diversified customer base and strong cash reserves mitigate these concerns.
Insider move
Lenders are concerned that a poorly written or incomplete credit memo can be interpreted as a failure to adhere to prudent lending standards. This can lead to a repair or denial of the SBA guaranty if the loan defaults, as the lender cannot adequately demonstrate sound underwriting.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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