Process
Credit approval
Credit approval is the lender's internal decision to commit. Until it happens you hold an originator's view of what their institution should do, not a commitment about what it will.
Also called credit committee · sanction · credit paper · credit approved terms
Your contact does not decide. They write the paper that persuades the people who do.
| Role | Position |
|---|---|
| Originator | Your contact |
| Credit analyst | 25–48 on the scale |
| Sanctioning officer | Delegated limit |
| Credit committee | Decides |
Typical internal path at a UK lender. Illustrative; institutions differ and no timing data is published.
What credit approval is
Credit approval is the lender's internal decision to commit money, taken by people who are not in the room with you. The person you have been dealing with, the originator or relationship director, is not the decision maker. They are the author of the case.
That distinction is the single most useful thing to understand about the process. Your contact wants the deal to happen: it is their transaction, their relationship and frequently their target. But wanting it and being able to grant it are different, and the enthusiasm you are hearing is a genuine signal about their view rather than a commitment from their institution.
An approval, when it comes, is almost always subject to conditions: satisfactory diligence, agreed documentation, and the conditions precedent list. Approved is not the same as unconditional.
The internal path
The shape is broadly consistent across lenders even though the labels differ.
The originator assembles the case and writes an internal credit paper. A credit analyst tests it, challenges the numbers and forms an independent view. Where the amount falls within a delegated limit, a sanctioning officer or credit director can approve it. Above that limit it goes to a credit committee.
The committee is the body furthest from the borrower and usually has no direct contact at all. They read a paper. They do not meet you, do not visit the business, and form their entire view from a document written by someone else about a company they have never seen.
That is why the pack matters so much: it is the raw material for the paper, and the paper is what gets voted on.
Indicative terms rarely survive untouched. Some parts move a lot on the way through credit.
| Term | Movement at credit |
|---|---|
| Security package | Usually holds |
| Margin | 20–45 on the scale |
| Amortisation profile | 38–62 on the scale |
| Covenant levels | 55–80 on the scale |
| Leverage and facility size | Moves most |
Relative likelihood of movement between indicative and approved terms. Illustrative market convention, not measured data.
Indicative against approved
An indicative term sheet reflects what the originator expects their institution to approve. A credit-approved term sheet reflects what it has approved, subject to conditions. They look almost identical on paper and are worth very different amounts.
The gap between them is where deals die and where terms tighten. It is entirely legitimate for a lender to issue indicative terms and then have credit take a different view; that is what the process is for. But a borrower who treats an indicative sheet as a commitment, grants exclusivity on it and stops the competitive process has misjudged the risk.
Which of the two you are holding is a direct question with a direct answer, and where a process is competitive, knowing which of two lenders has already been to credit is frequently worth more than a small difference in quoted margin.
What typically changes
Not evenly across the term sheet.
The security package usually survives, because it was set by policy rather than by judgement. The margin moves occasionally, more often on a repricing of risk than on a whim. The amortisation profile moves more often, because credit frequently wants faster deleveraging than the originator proposed.
Covenant levels and headroom are commonly tightened, since they are the lever credit reaches for when it is broadly comfortable but wants more protection.
Leverage and facility size move most of all, and for a mechanical reason: they depend on the earnings figure that diligence confirms. On a business presenting £2m of adjusted EBITDA at 3.0 times, £200,000 of adjustments struck out takes the facility from £6m to £5.4m, and £400,000 takes it to £4.8m. Nothing about the business has changed; only the number credit is prepared to lend against.
The originator is your advocate
This reframes the relationship in a way that is worth internalising. The originator is not the person you are negotiating against; they are the person writing your case for an audience you will never address.
That makes the useful question not what will you give me, but what will credit ask, and what do you need from me to answer it. An originator who has run the process before knows exactly where their credit team will push, and will usually tell you if asked directly.
The corollary is that surprises damage them as much as you. An originator who takes a paper to committee and is asked a question the borrower could have answered but did not disclose loses credibility internally, and that credibility is the thing carrying your transaction.
Facility size is the thing credit moves, because it moves with the earnings figure diligence confirms.
| Position | Facility |
|---|---|
| Indicative (£2m EBITDA) | £6m |
| Less £200k struck | £5.4m |
| Less £400k struck | £4.8m |
Multiplier: £200k of disallowed add-backs is £600k of facility at 3x. Derived across a £2m EBITDA case.
Why deals die at credit
Rarely for a single dramatic reason. More often because several smaller things accumulate into a picture the committee is not comfortable with.
The common patterns are earnings that do not survive diligence, so the structure no longer works at the reduced figure. Customer concentration that was visible in the pack but not addressed. A forecast that hockey-sticks without an operational explanation, which invites the committee to underwrite the historic run rate instead. A sector the institution has quietly stopped writing. And information arriving late or in pieces, which reads as disorganisation regardless of the underlying credit.
The last of these is the most avoidable and the most common. A pack delivered complete, with the bridge evidenced and the sensitivities included, does not guarantee approval. A pack delivered in fragments over six weeks reliably damages it.
What a borrower can do
Four things, in rough order of value.
The question credit will ask is better answered in the pack than in correspondence. Originators will usually say what their committee pushes on when asked directly afterwards.
An earnings bridge evidenced line by line, with the unsupportable adjustments already dropped, matters here because that is where the facility size is decided and a struck-out adjustment costs three times its face value at 3.0x leverage.
Supply the downside case yourself. Credit will model one regardless; providing it with the covenant headroom it implies moves the conversation from whether the business is fragile to how it behaves under stress.
And keep the process competitive until you hold approved terms. Exclusivity granted on an indicative sheet removes your alternatives at precisely the moment the terms are most likely to move.
Reading the timetable
Committee cycles are institutional facts rather than negotiable ones. Some lenders sit weekly, some fortnightly, some convene as needed, and a paper that misses a cycle waits for the next.
That is worth asking about early, particularly where a completion date is fixed by an acquisition. A lender whose committee meets fortnightly and requires papers a week in advance has an effective three-week lead time on any decision, and a diligence item arriving late can cost a full cycle rather than a few days.
It also explains something borrowers often misread as indifference. A quiet fortnight after a good meeting is frequently the paper being written and the cycle being waited for, not the deal going cold.
Common questions
What is credit approval?
The lender's internal decision to commit money, taken by people you never meet. Your contact, the originator, assembles the case and writes an internal credit paper; a committee or a sanctioning officer within a delegated limit decides on it. An approval is almost always subject to conditions, so approved is not the same as unconditional.
What is the difference between indicative and credit-approved terms?
An indicative sheet reflects what the originator expects their institution to approve. A credit-approved sheet reflects what it has approved, subject to conditions. They look nearly identical and are worth very different amounts. Ask which you are holding, and where a process is competitive, knowing which lender has been to credit often matters more than a small margin difference.
What usually changes at credit?
Leverage and facility size move most, because they depend on the earnings figure diligence confirms. Covenant levels and headroom are commonly tightened. The amortisation profile moves reasonably often. The margin moves occasionally. The security package usually survives, because it was set by policy rather than judgement.
Why did my facility shrink after credit?
Almost always because adjustments to EBITDA were struck out. On a business presenting £2m of adjusted earnings at 3.0 times, £200,000 disallowed takes the facility from £6m to £5.4m and £400,000 takes it to £4.8m. Nothing about the business changed; only the number the lender will lend against.
Is my relationship manager on my side?
Generally yes, in the sense that matters. They are not the decision maker; they are the author of your case for an audience you will never address. The useful question is not what will you give me but what will credit ask and what do you need from me to answer it. Surprises damage their internal credibility as much as your deal.
Why do deals die at credit committee?
Rarely one dramatic reason. Usually earnings that did not survive diligence, unaddressed customer concentration, a forecast that hockey-sticks without explanation, a sector the institution has quietly stopped writing, or information arriving late and in pieces. The last is the most avoidable and the most common.
How long does credit approval take?
It depends on the committee cycle, which is an institutional fact rather than a negotiable one. Some lenders sit weekly, some fortnightly, some as needed, and a paper that misses a cycle waits for the next. A lender meeting fortnightly and requiring papers a week ahead has an effective three-week lead time, so a late diligence item can cost a full cycle.
Should I grant exclusivity before credit approval?
It removes your alternatives at exactly the moment the terms are most likely to move. Where a lender wants exclusivity on an indicative sheet, the useful protections are as short a period as diligence realistically requires and a cap on the costs you agree to bear.
The full treatment sits in the guide: debt term sheet negotiation.
This page explains a term as it is used in the UK lower-mid-market. It is general information, not advice on any particular facility. Terms vary between lenders and between deals, and the drafting in your own agreement governs.