What lenders look for in a credit proposal

A credit proposal is read by people who see hundreds of them, and who have a structured way of forming a view long before they reach a final decision. Understanding roughly what that structure looks like — what a credit analyst is actually checking for, in what order — makes it possible to build a proposal that answers the questions before they are asked, rather than one that reads well to the promoter but raises questions for the lender.

The five things every analyst is checking

Strip away the specific ratios and forms, and most credit assessment comes down to five underlying questions: who is the promoter and what is their track record; what does the business actually do and how sustainable is that; can the numbers be trusted; can the cash flow service the proposed debt; and what happens to the lender if things go wrong. Everything in a proposal — the financials, the projections, the security offered — exists to answer one of these five questions.

Promoter track record matters more than promoters expect

Lenders place significant weight on how a promoter has conducted their existing accounts — whether repayments have been on time, whether facilities have been used for their stated purpose, whether statutory dues and compliance have been kept current. This is checked partly through a commercial credit report and partly through direct account conduct with the lender itself. A strong current proposal built on a history of delayed payments or diverted facility usage is a much harder sell than a modest proposal built on a clean track record.

Internal ratings and external credit ratings

Most banks run every proposal through an internal rating model that scores the business across financial and non-financial parameters and produces a risk grade, which in turn affects pricing and the level of approval required. Larger facilities, or facilities above certain thresholds set by the lender, may also require an external credit rating from an accredited rating agency. Both exercises are looking at broadly the same underlying strengths and weaknesses — financial performance, industry risk, management quality, and the structure of the facility — just through slightly different lenses.

The numbers that get scrutinised hardest

A handful of ratios recur across almost every credit assessment, because they answer the debt-servicing-capacity question directly. The debt service coverage ratio checks whether projected cash flow comfortably covers principal and interest obligations. Interest coverage checks the same idea more narrowly, against interest alone. TOL/TNW (total outside liabilities to tangible net worth) checks how leveraged the business already is relative to its own capital base. None of these numbers exist in isolation — a lender reads them against industry norms and against the specific structure of the proposal, not against a single universal cutoff.

Security and downside protection

Even a strong proposal is read alongside what happens if the projections do not play out. This is where primary security (the asset the loan is funding, or stock and receivables for working capital), collateral security (additional assets pledged), and personal or corporate guarantees come in. Offering appropriate security is not a sign of weakness in a proposal — most facilities of meaningful size carry some form of security — but overstating what is available, or offering an asset that turns out to have an existing charge, undermines credibility on everything else in the file.

A practical summary for building your proposal

1. Lead with a clear, honest picture of the promoter's background and track record.
2. Explain the business and its demand drivers in plain language before the numbers arrive.
3. Make sure financials, GST returns, bank statements and CMA data tell a consistent story.
4. Show the key ratios (DSCR, interest coverage, TOL/TNW) and be ready to explain any that look unusual.
5. Be upfront and accurate about security and guarantees — do not oversell what is available.

How the proposal actually moves through a bank

It helps to understand, at least in outline, the path a proposal takes internally, because it explains why some queries arrive well after the first meeting. A relationship manager typically does an initial screening and packages the file; a credit analyst then works through the financial and qualitative assessment described above and prepares a detailed appraisal note; depending on the size of the facility, this note then goes to a sanctioning authority or committee, which may sit at the branch, at a regional office, or at head office for larger exposures. Each level can raise its own queries, which is why a proposal that looked complete at submission can still generate a further round of questions weeks later — it is not necessarily a sign that something is wrong, simply that a different set of eyes is now reviewing the file.

Knowing this also explains why keeping the relationship manager updated — on a new order won, a clarification already prepared, a document already couriered — genuinely helps. The relationship manager is often the only person in the chain who can proactively flag a query to the promoter and get a fast answer back into the file, rather than the file sitting until the next scheduled committee date.

It also helps to ask, at the outset, roughly what level of sanctioning authority a proposal of this size is likely to require, and what that authority's typical turnaround has been for similar cases. This is not something every relationship manager will volunteer unprompted, but most will answer directly if asked, and it gives the promoter a realistic sense of the timeline to plan against, rather than assuming every proposal moves at the same pace regardless of size.