Hong Kong SME documents guide · Free document checklist
SME facility letter and credit memo for Hong Kong lenders
The credit memo explains why the lender should lend. The facility letter sets out what the borrower has been offered. Both are written from the same approved terms, and a mismatch between them is where disputes start.
Core definitions
Put similar concepts in the right place
Each component solves a different problem. Complete lending operations depend on clear data and workflow hand-offs.
| Item | What it does in practice |
|---|---|
| 01Borrower and purpose | Who the borrower is, who owns and directs it, what the money is for and how the loan will be repaid. |
| 02Financial analysis | The spread financials, the ratios used and what they show about repayment capacity, leverage and liquidity. |
| 03Security and guarantees | What backs the loan, its value and the date of that value, the haircut applied and who guarantees it. |
| 04Risks and mitigants | What could stop repayment and what the lender has done about it. |
| 05Recommendation and conditions | The proposed facility, the conditions before drawdown and the covenants after it. |
| 06Facility letter terms | The amount, tenor, pricing, repayment schedule, fees, security, conditions, covenants and events of default as approved. |
Background
How the memo and the letter fit together
The memo is written for the approver and the file. The letter is written for the borrower. They share facts but not tone.
What the memo is for
The memo lets an approver decide without reading the whole file. It states the proposal first, then the evidence for it, then the risks. A reader should find the recommendation in the first few lines.
It also becomes the record of why the lender lent. Years later, an auditor or a successor reads it to understand the decision.
What the letter is for
The letter turns the approval into an offer. Every term in it should trace to the approved record: the amount, the tenor, the pricing, the repayment, the security, the conditions and the covenants.
A letter that says more than the approval did, or less, creates a gap between what was approved and what was agreed.
Where the legal wording sits
The commercial terms come from the approval. The standard wording, such as representations, events of default and governing law, comes from the lender’s legal counsel. Keeping them in separate parts of the letter makes clear which is which.
After the letter is signed
The signed letter starts the next stage: conditions to satisfy before drawdown, covenants to test during the loan and reviews to schedule. These are best recorded at the point of approval, so they are not rebuilt from the letter later.
Book an SME lending walkthrough
A working session on your own credit memo and facility letter.
Workflow
From approval to a signed facility letter
- 01
Write the memo from the case file
Take figures, ratios and security values from the file, not from a separate document, so the memo and the file agree.
- 02
Record the approval
Keep who approved, under what authority, with which conditions and exceptions.
- 03
Draft the letter from approved terms
Pull amount, tenor, pricing and conditions from the approved record rather than retyping them.
- 04
Apply the legal wording
Insert your legal team’s standard terms and any borrower-specific clauses.
- 05
Check before issue
Compare the draft letter with the approval record, line by line.
- 06
Issue and keep the final
Send the letter, keep the final version and record what was issued and when.
Printable worksheet
Free: 12-point credit memo and facility letter checklist
Use it on a recent SME file. This is an operational self-assessment, not legal or credit advice.
Practical evaluation
Three things that cause rework
Two sources of truth
When the memo and the letter are typed separately, they drift. One approved record should feed both.
Conditions hidden in prose
A condition buried in a paragraph is easy to miss at drawdown. List conditions and covenants as items that can be ticked off.
Legal wording owned by nobody
Standard terms need a named owner in the lender’s legal function, who decides when they change.
Frequently asked questions
Quick answers
What is a credit memo?
A credit memo, also called a credit paper, is the internal document that sets out the borrower, the analysis, the security, the risks and the recommendation for the approver.
What is a facility letter?
A facility letter is the document sent to the borrower that states the terms on which the lender offers a facility. The borrower accepts it by signing.
Does Covenant Desk produce both?
Yes. Covenant Desk produces a facility letter as a PDF and a credit memo print page from the same case data. The letter has a standard-terms section for your legal team’s wording.
Who writes the legal terms?
The lender’s own legal counsel. The letter has a standard-terms section where their wording goes.
Primary sources
Official sources and editorial note
This guide reflects official material available on the review date. Requirements can change; each institution should check the latest licence conditions and obtain legal or compliance advice. This page is not legal advice. Read our editorial and corrections policy.
Next step
See a facility letter and credit memo produced from one case.
Talk to us about your SME documents, or try the Covenant Desk platform they are produced from.
Covenant Desk is lending operations software. It does not provide loans, issue credit reports or replace the lender’s final credit decision.