Feasibility Studies, Business Plans, and Investment Memos: What Banks Really Need

Introduction: The Documents Behind a Deal

When a commercial bank’s credit committee meets to consider a new loan, the room often fills with paper (or its digital equivalent). There’s the business plan – a glossy, optimistic narrative of a company’s vision. There might be a feasibility study – a sober analysis testing whether that vision can actually pan out. And, crucially, there’s the bank’s own investment memo (often called a credit memorandum) – an internal report distilling the deal into risks and recommendations. Each document tells a story, but not all stories carry equal weight.

Senior risk officers and bank executives have learned, through experience and hard knocks, to read between the lines. A 50-page business plan might brim with market zeal and financial projections, yet leave a veteran lender asking: “Are these assumptions true?”. A feasibility study, ideally from an independent expert, probes that very question, stress-testing the dream against cold realities. And the investment memo – compiled by the bank’s analyst – cuts to the chase: outlining the pertinent risks, mitigants, and deal structure that determine whether the bank says yes or no.

This article explores the conceptual and practical distinctions between feasibility studies, business plans, and investment memos, especially through the lens of U.S. commercial banks evaluating lending opportunities. We’ll see why banks value some documents more than others for credit risk assessment, regulatory compliance, underwriting, and portfolio management, and how they extract nuggets like covenants, collateral strategies, and DSCR benchmarks to protect themselves. Along the way, we’ll look at real-world scenarios – from a thwarted real estate venture to a thriving industrial expansion – that illustrate how these documents are used or misused in practice.

Distinct Roles: Plan vs. Study vs. Memo

At first glance, a business plan and a feasibility study might seem to cover similar ground – both contain projections and talk about a venture’s future. In reality, they serve different masters and objectives:

• Business Plan: This is the entrepreneur’s story, a roadmap for growth and success. It lays out what the business will do, how it will attract customers, and how management envisions the future. It’s often a persuasive document meant to impress lenders or investors. Sections include marketing strategy, product offerings, management team bios, and financial forecasts. Importantly, a business plan is usually authored by the borrower (sometimes with consultants’ help) and, as such, it doubles as a sales pitch for the business’s potential.

• Feasibility Study: This is more of an objective investigation – a technical and financial assessment of whether the project can succeed, not how it will operate day-to-day. It asks hard questions: Is there real demand for the product at the prices needed? Are the cost estimates reliable? What could go wrong and would the project remain viable if it does? In essence, a feasibility study’s job is to answer “Go or No-Go?” – should we proceed or not. It typically includes market analysis, scenario testing, regulatory considerations, and a recommendation on whether the idea is sound. Banks often prefer this to be prepared by an independent party to ensure unbiased analysis (since a founder’s optimism can unconsciously bias assumptions).

• Investment Memo (Credit Memo): This is the bank’s internal document, crafted by the credit analyst or loan officer for the bank’s decision-makers. Unlike the other two, it’s not given by the borrower but created by the lender. It summarizes the deal: borrower background, loan terms, collateral, and – most critically – an analysis of risks (with an emphasis on the downside) and how those risks are mitigated. If the business plan is the passionate plea and the feasibility study the factual investigation, the investment memo is the verdict or recommendation, written in the bank’s language of risk and return. It must be factual, often brief, and focused on whether the loan meets the bank’s credit standards. As one advisor quips, a good credit memo is “objective persuasion” – it advocates for a decision using clear analysis, not rosy prose.

Conceptually, then, the business plan is about ambition, the feasibility study about viability, and the investment memo about prudence. Practically, they also come at different stages. A feasibility study might be commissioned early – even before a full business plan – to decide if an idea is worth pursuing. The business plan typically comes once the concept is validated and the venture needs to chart a course or raise funds. The investment/credit memo is last in line, created as the bank processes the loan application, just before approval (or denial), to document the rationale.

What Banks Really Care About

From a bank credit committee’s perspective, these documents are not all created equal. Regulatory guidance and credit policy shape what bankers must pay attention to. Ultimately, lenders are concerned with one paramount issue: the borrower’s ability to repay the loan, on time and in full. Everything else – the grand vision, the sleek pitch deck – is secondary to evidence of repayment capacity under realistic conditions.

A seasoned credit officer will thus zero in on the parts of a business plan that speak to cash flow, leverage, and collateral. They will also look for any independent analysis (feasibility study) that validates the numbers. In fact, if a business plan is provided without a feasibility study in a higher-risk scenario, many banks will ask for one. It’s not that the plan is “badly written”; it’s that “the bank needs independent support for the assumptions that drive repayment”. The feasibility study fills that validation gap by answering the questions the business plan glosses over: Will customers really come? What if costs are 20% higher? And if no such study is available, the bank’s analysts will effectively perform that analysis themselves before proceeding.

Banks operate under regulatory expectations to verify and stress-test a borrower’s projections. For example, in commercial real estate loans, examiners expect credible pro forma financial statements and will check that the bank reviewed underlying assumptions for reasonableness. If the borrower projects a 95% occupancy rate in a new building, does an independent market study support that, or is the bank taking a leap of faith? In one Comptroller’s Handbook, regulators explicitly note that “prudent underwriting” means checking pro formas and obtaining feasibility studies or market analyses for development projects. The message: don’t just take the developer’s word for it – validate it.

In terms of credit risk and regulatory compliance, banks place the highest value on information that is:

• Objective and Supported: Third-party studies, audited financials, and appraisals carry more weight than a sponsor’s self-reported projections. Banks know internal projections can be biased by optimism. That’s why, for instance, an independent feasibility study or appraisal is often required for large real estate developments, to ensure the project’s viability has been vetted by someone other than the excited developer.

• Worst-Case Oriented: Unlike equity investors who might be fixated on upside, bankers obsess on the downside. They comb feasibility studies for evidence the deal can survive “normal friction” – slower sales, cost overruns, delays. A business plan heavy on growth narrative but light on contingency planning will leave them cold. They’d rather see a modest base case and analysis of how bad things can get before the loan is in jeopardy.

• Aligned with Cash Flow Repayment: Banks lend money to be paid back, not to own a piece of the business’s infinite growth. So they look at the cash flow coverage. A common benchmark is the Debt Service Coverage Ratio (DSCR) – essentially how many times the borrower’s cash flow covers the loan payments. If the plan shows a DSCR of 1.2 (meaning only a small cushion above breakeven), the bank might be uneasy. Many banks set minimum DSCR requirements for loans (for example, requiring a DSCR of say 1.3 or 1.5 depending on the risk). According to regulatory guidance, the DSCR (defined as net operating income divided by annual debt service) is a key measure of ability to service debt. Banks will stress-test that ratio – what if revenue is lower or interest rates rise? Will the DSCR fall below 1, signaling likely default? In credit memos, analysts often present a sensitized DSCR – “In a downside scenario of 10% lower sales, DSCR falls to 1.1x” – to inform the credit committee of the buffer.

• Collateral and Guarantees: Commercial banks also focus on secondary repayment sources. If cash flow falters, is there collateral to seize or a guarantor to pay up? A business plan might mention assets needed and their value, but the investment memo will detail the collateral package (liens on property, equipment, inventory, etc.) and guarantees. Bankers extract these details to ensure loss given default is minimized. As the OCC notes, good underwriting sets conditions (like collateral margins, covenants, guarantees, insurance) that allow the bank to control risk and reduce loss. For example, if a business plan says the company will buy $2 million in new machinery to expand production, the bank’s loan might be structured to directly finance that machinery and secure a first lien on it – turning the optimistic line in a business plan into a concrete collateral strategy.

• Compliance and Covenants: Often, banks will lift certain forecasts or promises from the business plan and hardwire them into loan conditions. If the plan says, “EBITDA will reach $5M by year 3,” a bank might not take that on faith – but it may insert a covenant that by year 3, the company must maintain a specified EBITDA or DSCR, or else face restrictions (like no dividends, or even loan default). Similarly, if a feasibility study shows that the project is viable only if construction is completed by a certain date, the bank will include deadlines and completion covenants in the loan agreement. Internally, the credit memo will highlight these key metrics and propose covenants. Essentially, bankers repurpose the borrower’s projections as performance targets that can be enforced. This protects the bank; it also forces an early dialogue if the business veers off-plan, as we’ll see in examples.

Case Study 1: The Over-Optimistic Business Plan

The Scenario: A regional bank in California considers a loan to Sunny Brew Cafes, a small chain of organic coffee shops looking to expand statewide. The borrowers present a polished business plan – complete with glossy photos of latte art – projecting that revenue will double in three years as they open five new locations. The plan is ambitious, citing the trend of health-conscious consumers and the team’s passion. It even shows a healthy profit by year 3. Impressed by the enthusiasm, the bank extends a $1.5 million term loan for the expansion, largely on the strength of this plan and the owners’ personal guarantees.

What Happened: Within a year, Sunny Brew’s expansion ran into trouble. Two new locations struggled to attract the projected foot traffic. Revenues were 30% below the business plan’s forecast. Consequently, cash flow was tight – by the bank’s calculation, the DSCR sank below 1.0 (meaning the cafes weren’t generating enough cash to cover loan payments). The owners had assumed customers would flock in immediately, but competition in one area was fiercer than expected and a delayed permit pushed back the opening of another location, hurting cash flow. In retrospect, the business plan had “optimism bias” – it focused on what the team believed would happen, not on realistically attainable sales. It lacked a rigorous downside analysis; for example, it didn’t ask “What if revenues are slower to ramp up?”

The bank, facing a deteriorating loan, convened a meeting with Sunny Brew’s owners. U

restructured the loan, extending the repayment period and requiring the owners to inject more equity to shore up cash flow. Internally, the post-mortem at the bank noted that while the original business plan was detailed and enthusiastic, it wasn’t a substitute for independent validation. “A business plan is useful. But banks don’t treat it as a substitute for validation,” as one expert put it. In this case, the bank belatedly did what it should have done upfront: run a viability check (essentially a feasibility study) asking “Are the assumptions true?” under less rosy conditions. The Sunny Brew saga taught the credit committee a valuable lesson. Ever since, when presented with borrower projections, the bank either conducts its own sensitivity analysis or insists the borrower provide a feasibility study with scenarios – especially for new ventures. In credit policy terms, they formalized that for “projects [where] uncertainty increases, banks stop relying on confidence and start relying on validation”

Feasibility Studies: The Bank’s BS Detector

In contrast to the hopeful tone of businessibility studies are all about kicking the tires on those hopes. A well-done feasibility study is often the deciding factor in whether a bank will lend for a higher-risk project. It systematically answers the questions that keep bankers up at night. As one consultant noted, banks essentially “read it like a risk filg for whether the deal can survive “normal friction” such as slower demand or cost overruns

Key areas a feasibility study examines (and that banks zero in on) include:

• Demand Realism: Is there evidence customers will buy at the needed price point? It’s not enough to say “the market is big.” For example, if a developer wants to build a new hotel, a feasibility study must show demand in that specific locale (e.g. occupancy rates in that segment) rather than generic national trends. Bankers look for proof of absorption – will units or services sell, and how quickly?

• Pricing and Margins: Are revenue projections based on defensible pricing? Banks often challenge rosy price assumptions. In one case, a feasibility review of a proposed senior living facility forced the sponsors to assume lower monthly rents after the bank’s analysts pointed out the presence of a cheaper competitor nearby. The study should check if profit margins hold up if prices have to be cut or if competitors retaliate.

• Complete Cost Assessment: This is a common pain point. Feasibility studie tally not just obvious costs but “the unfun items” – construction overruns, permits, insurance, training staff, maintenance, contingencies. Borrowers might leave these out in a business plan (whether by oversight or to make projections look nicer). Banks will comb through: have all realistic expenses been included and timed properly? study that includes a thorough cost breakdown (with inflation and contingency buffers) signals to the bank that the project’s budget is credible.

• Cash Flow Timing and Break-Even: Unlike venture capital, which might accept years of losses, banks care about when cash starts flowing. A feasibility analysis typically includes a month-by-month (or quarter-by-qlow projection to identify the break-even point – the moment when incoming cash consistently cove and debt service. Banks look closely at this ramp-up period. How long is the borrower’s cash cushion before break-even? d perhaps a working capital line to bridge the gap? If the study shows an uncomfortably tight timeline, the bank might require additional capital or even deny the loan.

• Downside Scenarios: Perhaps most importantly, a feasibility study runs “what if” scenarios. What if revenues are 20% below forecast, or the project opens six months late, or raw material costs spike 15%? Banks want to see these scenarios spelled out. If the project only works when everything goes exactly right, it’s a red flag – likely “not bankable”. A good study e break-even sensitivities: e.g., “the project remains viable (DSCR ≥ 1.2) even if sales are 10% below base case and construction costs 10% over budget.” Such analysis provides comfort to lenders that the loan has a buffer.

  
  

   Financial analysts use feasibility studies and models to stress-test assumptions. Above, a laptop displays financial data and charts – mirroring how bankers examine projections under various scena practical impact of a solid feasibility study is huge. It can be the difference between a quick “no” from the bank and a “maybe, under these conditions.” One real-world example: Midwest BioFuels LLC, a hypothetical ethanol plant venture in Iowa around 2007. The entrepreneurs were riding high on surging oil prices and gates. Their business plan projected healthy profits as long as oil stayed above $70 and corn (their key input) remained ing the volatility, the bank requested an independent feasibility study. The resulting report ran scenarios: what if oil prices fall or corn prices jump? Indeed, it warned that a significant swing in either could “significantly reduce the returns to ethanol producers.” In fact, regulators at the time cautioned about exactly this risk: a boom mentality assuming permanently high oil prices could be dangerous. Armed with this study, the bank structured the loan cautiously. They required more equity upfront (so the project wasn’t over-leveraged), and set aside an interest reserve – basically extra cash – to cover debt payments if cash flow underperformed. They also put in a covenant that if the plant’s DSCR fell below 1.15, profits must be retained (no distributions to owners) and a review triggered. Sure enough, a few years in, oil prices dipped and corn costs rose, pinching margins. Thanks to the conservative structure, Midwest BioFuels stayed current on the loan (the equity cushion absorbed the hit). The bank’s proactive use of feasibility analysis and covenants meant an initin turned into a manageable one.

This example illustrates why banks sometimes insist on feasibility studies even when borrowers think they’ve provided enough info. The study translates optimism into realism. It’s also a time-saver in the long run. Without it, the bank’s underwriters would engage in back-and-forth questions – “Where did this pricing come from? Why is demand ramping so fast? What if costs run over? – delaying decisions. A well-crafted feasibility study answers these upfront, making internal review smoother. As one guide notes, “Committeesguity. They like clean logic, clear downside, and defensible conclusions.”  When lenders see that a project has been vetted under adverse scenarios, it not only boosts their confidence, it also ticks the boxes for regulatory expectations that the bank is being diligent, not just rubber-stamping a borrower’s narrative.

Casibility Study to the Rescue

The Scenario: A community bank in the Midwest was approached for a loan to build a new 100-room boutique hotel in a small city. The developers – first-timers in hospitality – provided a detailed business plan with financial forecasts. According to their plan, the hotel would achieve 80% occupancy within six months of opening, at room rates comparable to upscalrger cities. The projected cash flow looked sufficient to service the debt, on paper. However, the bank’s credit officer had been through the 2008 real estate downturn and knew how paper projections can falter. So, as a condition precedent to considering the loan, the bank asked for a third-party feasibility study.

What Happened: The consultants’ feasibility study came back with eye-opening findings. Yes, there was demand for a hotel – but likely at occupancy in the first year, given the small city’s limited tourism and the time needed to ramp up marketing. Also, to achieve even that occupancy, the hotel might have to cut room rates below the developers’ assumption, because two older hotels in town would likely respond by undercutting prices. The study also pointed out costs the developers had underestimated – particularly, the need for higher working capital to cover operating expenses in the slow ramp-up period (something the business plan hadn’t fully accounted for). Under the study’s more conservative assumptions, the first-year DSCR on the loan would be just barely 1.0, improving to 1.25 by year three – whereas the business plan had cheerily predicted a DSCR of 1.5 by year one.

Armed with this sobering analysis, the bank didn’t outright reject the deal, but went back to the borrowers with conditions. To proceed, the loan had to bed: the borrowers must inject more equity upfront (to lower the debt and improve DSCR), an interest reserve account would be set up to cover the first year of payments (since cash flow would be thin initially), and the loan agreement would include covenants that the hotel maintain at least a 1.2 DSCR after year two and not exceed a certain leverage level. The borrowers, armed with the feasibility insights, agreed – they wanted the project to succeed too. The loan was made under these tighter terms.

Two years later, the hotel’s performance was roughly in line with the feasibility study’s conservative case. Occupancy was around 65% and rising. Because of the bank’s structure, the loan was performing and covenants were met. In internal discussions, the bank’s executives cited this as a success story: without the feasibility study, they might have lent on overly optimistic terms and seen the fault when the rosy scenario didn’t materialize. Instead, by treating the study’s findings as guideposts (and essentially repurposing those findings into loan terms and monitoring benchmarks), the bank turned a risky venture into a balanced risk. This case also earned a nod from examiners during a routine audit – as the bank could show documentation of thorough due diligence and prudent underwriting, which checked the regulatory box for sound credit risk management.

The Investment Memo: Inside the Bank’s Decision

If the business plan and feasibility study are inputs, the investment memo (or credit memo) is the output that directly interfaces with the bank’s decision-making apparatus. This is the document that the credit committee members read (or skim) just before voting on a loan. In many ways, it’s an art form of its own – distilling all relevant information into a concise narrative, balancing optimism and skepticism, and framing the decision in the context of the bank’s risk appetite.

A well-crafted credit memo typically includes:

• Overview of the Borrower & Request: Who is the borrower (ownership, management), how much do they want to borrow and for what purpose? This sets the stage.

• Business & Industry Analysis: Key points about the company’s business model and the industry outlook. If there was a business plan provided, this section filters out the fluff and highlights what matters to the bank – e.g., the company’s competitive position, customer base stability, or external factors affecting the industry.

• Financial Analysis: Here the memo will present historical financials (if available) and projections. Crucially, it will often adjust the borrower’s projections to more conservative levels or test them. The analyst might include a table: Base Case vs. Downside Case financial ratios. For instance, if the borrower’s plan projects a debt-to-EBITDA of 3x, the memo might also show a downside case of 4x to demonstrate what happens if earnings are lower. Cash flow analysis leading to DSCR calculations is central. In our earlier examples, the memo for the hotel deal, for instance, explicitly cited the DSCR in various scenarios and noted the minimum level allowed by covenant.

• Collateral and Guarantees: The memo will detail the collateral (with estimated values, often from appraisals) and any guarantees. For example: “Loan will be secured by first lien on accounts receivable, inventory, and equipment, collectively valued at $X. Personal guarantees of the two owners, each with estimated net worth of $Y, are also in placecommittee members comfort that even if things go south, there are fallback options.

• Key Risks and Mitigants: Perhaps the most critical section, it lists the main risks of the loan and how they’re mitigated. A credit officer’s credibility with the committee often hinges on identifying the real risks and not hiding from them. For example, a memo might say: “Risk: Company is entering a new market, with unproven demand for its product. Mitigant: The loan is structured with interest-only period and backed by a third-party feasibility study showing sufficient demand under conservative scenarios. Additionally, a covenant requires minimum quarterly sales of $X, intervention if demand lags.” By enumerating risks upfront and providing mitigants, the memo answers committee members’ likely questions before they’re asked.

• **RecoThe analyst or loan officer will typically give their recommendation (“Approve as proposed,” “Approve with conditions,” or “Decline”) along with rationale. They will tie this into the bank’s risk appetite and perhaps loan portfolio strategy (e.g., noting if this loan helps diversify the portfolio or, conversely, if the bank is already heavy in this industry, etc.).

The tone of an investment memo is meant to be fact-based and measured. Unlike a busineoverly optimistic language is frowned upon – it could “undermine the institution’s credibility” if the loan goes bad and someone reviews the file later. In fact, credit memos are often scrutinized by regulators. Examiners want to see that the bank made a decision based on sound analysis and that the memo “stands up to scrutiny months or years later”. A memo that said “We’re confident this will succeed because the sponsors are passionate” would be a red flag; it should instead say somethiors have relevant experience, and projections have been stress-tested for reasonableness.”

Internally, the process of writing the memo forces the bank’s team to synthesize the feasibility study and business plan into actionable intelligence. For instance, the feasibility study might contain 100 pages of analysis – the credit memo will boil that down to a few bullet points: e.g., “Independent market study by XYZ Consulting indicates project is viable at 70% of initially projected san occupancy is 55%, which is below current market average occupancy of 60%, providing some cushion.” Similarly, the business plan’s ambitious growth targets may be toned down in the memo, or noted with skepticism: “Management projects 20% annual growth; industry average is 5%. We underwrote the loan assuming 5-10% growth to test repayment ability.”

Case Study 3: Translating Documents into Decisions

The Scenario: A midturing company, Allied Widgets Inc., seeks a loan to expand its production facility. Allied provides the bank with a business plan detailing the expansion’s rationale: a new product line, expected to boost revenue by 50% over five so have a feasibility analysis from an engineering consultant confirming that the new production line is technically and economically feasible, given certain volume and efficiency assumptions. The loan request is for $10 million, secured by the new equipment and the plant, with a projection of healthy cash flow from increased sales.

Inside the Bank: The bank’s credit analyst gathers the information and prepares the investment memo. Here’s how the two external documents (business plan and feasibility study) get repurposed:

• The business plan said: New product line will capture a big chunk of market share, and revenue will grow 50% in five years. The analyst, in the memo, notes the growth plan but also checks industry data – finding that even iwth is 50%, it would only achieve a market share of 10%, which seems plausible in context. However, she also creates a stress case: what if revenue grows only 25%? The memo presents both scenarios, showing that in the lower growth case the company can still service the debt, albeit with a tighter DSCR of, say, 1.2 versus 1.8 in the base case. This gives the committee comfort that even if the business plan’s goals aren’t fully met, the loan isn’t immediately in peril. Essentially, the bank ess plan’s numbers as an outer bound, but makes its decision on a more conservative set of numbers.

• The study ighlighted that the project’s success hinges on achieving a certain production efficiency (e.g., cost per unit must drop by 10% with the new equipment to maintain margins). In the credit memo’s risk section, the analyst flags this: Key Risk: T

  fficiency gains may be delayed or not fully realized, which would hurt margins. Mitigant? The memo notes that the loan agreement will include a covenant requiring a minimum Debt Service Coverage Ratio after the expansion is operational, effectively compelling the company to maintain adequate cash flow or face restrictions. It also notes that Allied’s owners have agreed to provide additional collateral (a second lien on another property) as a buffer. The memo thus directly ties a point from the feasibility study to a covenant: the bank will monitor DSCR and could intervene if the efficiency (reflected in cash flow) isn’t up to par.

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During the credit committee meeting, thanks to the memo, the discussion is focused and concrete. A committee member might ask, “What’s our out if their sales only hit half of projection?” The memo already shows that even at half the projected growth, the loan’s collateral value and guarantor support would likely allow full recovery, and DSCR would be low but manageable due to the loan’s structuring (maybe the loan amortizes slower until the growth is real member might question, “How do we know their widget market isn’t about to decline?” The memo references an industry report (perhaps originally cited in the business plan, but vetted) showing steady demand for the next decade. Satisfied, the committee approves the loan – with conditions. They ask that the DSCR covenant be set a bit higher than initially proposed (for extra safety), and that the company provide quarterly performance updates.

Outcome: Allied Widgets expands successfully, but a year in, hiccups emerge. The new production line’s efficiency is lagging; some equipment tuning took longer than expected. As a result, the company’s cash flow is below the plan, and the DSCR slips to just at covenant minimum. Because this trigger was in place, the bank is alerted early. Rather than the situation deteriorating unnoticed, a meeting is called. Allied’s management commits to invest in an expert to fix the efficiency issues (essentially injecting a bit more equity into the project) and the bank agrees to a minor waiver for two quarters on the covenant, trusting the plan to get back on track. Indet year, the line is performing efficiently, and cash flow improves above the covenant threshold. The loan is now on a sound footing.

This case demonstrates how banks internally use and repurpose the information from business plans y studies. The investment memo was the vehicle for translating that information into actionable covenants and monitoring benchmarks (like DSCR) that align with the bank’s risk management. From a portfolio management perspective, it meant this loan was never a surprise; it was tracked against the original projections (adjusted for prudence). If Allied had failed to meet the projections entirely, the covenants would have allowed the bank to demand corrective action or declare default before things got out of hand.

Why Some Documents Matter More than Others

In analyzing these three types of documents, a clear hierarchy emerges in the eyes of a U.S. commercial bank:

• Feasibility Study = Evidence. When done properly, it’s an impartial test of the venture’s assumptions. Banks love evidence. A feasibility study directly addresses credit risk concerns (Can the borrower pay us back if X or Y goes wrong?). It also provides cover for the bank – showing regulators and loan reviewers that an independent assessment was considered. Especially in areas like project finance, commercial real estate development, or any deal heavy on projections, a feasibility study is often deemed more valuable than the borrower’s own promises. It reduces uncertainty and, as we saw, can speed up approval by answering tough questions in advance.

• Business Plan = Insight (with a grain of salt). The business plan is still valuable – it gives lenders insight into the borrower’s strategy, their understanding of the market, and it’s often a starting point for financial information. For established businesses, a business plan might articulate how this loan fits into their growth, or it might be part of a broader package (like an SBA loan application). But banks view it as biased toward the positive. It’s a sales document. As one banking advisor put it, a business plan “explains how you plan to operate” but “still doesn’t answer the bank’s core question: ‘Are the assumptions true?’”. That skepticism is why many experienced lenders skim the glossy sections (“nice marketing plan, great story…”) and hone in on the financials and any sections that hint at risk. From a regulatory compliance perspective, relying solely on a business plan would be seen as naive. It’s useful, but not sufficient.

• Investment/Credit Memo = Decision Rationale. This is the bank’s own document and arguably the most valuable of all internally. It’s what the credit committee signs off on, and it’s the record that examiners will look at. A strong credit memo reflects a synthesis of all available information through the lens of credit risk, regulatory guidelines, and the bank’s policies. If something was in the business plan or feasibility study but isn’t in the credit memo, for the bank’s purposes it might as well not exist. Conversely, the memo might include analysis or data not provided by the borrower (for example, credit bureau reports, competitor comparisons, or internal risk rating scores). In portfolio management, this memo (and associated financial spreads) becomes the baseline against which the loan is reviewed periodically. For instance, during an annual review, the analyst will compare actual performance to the projections noted in the original credit memo. Any major deviations (e.g., sales are 30% below projection) will be flagged, and the loan might be re-risk-rated or even placed on watch.

From a compliance and regulatory standpoint, what matters to examiners is that the bank has done its due diligence and documented why the loan was made. Feasibility studies and business plans become part of the file, but the credit memo is the map that shows regulators the path of the bank’s thinking. Regulators will ask: Did the bank identify key risks? Did it verify the borrower’s numbers? If an industry is cyclical, did the memo acknowledge that? Is there a contingency plan (like covenants or guarantees) if things go south? A well-written memo ticks those boxes.

Historical and Institutional Insights

Historically, banking wasn’t always so document-heavy. Decades ago, a local banker might have made a loan on a handshake, guided by personal knowledge of the borrower (the old “character” lending) and a simple analysis of collateral. Formal business plans were rarer outside of corporate loans; feasibility studies were mostly confined to large projects; and credit memos might have been a few scribbled paragraphs. But as banks grew and regulation tightened, especially after lending fiascos and financial crises, documentation and analysis became king. The Savings & Loan crisis of the late 1980s, for example, was exacerbated by overly optimistic real estate lending – essentially, banks financing projects on faith that property values would keep rising. In its wake, regulators imposed stricter requirements: robust appraisals (a type of feasibility check on value), limits on certain high-risk loans, and expectations that banks thoroughly document why a loan made sense. Fast forward to the 2008 financial crisis: again, poor underwriting was blamed – loans were made based on flimsy documentation and unrealistic borrower assertions. Post-2008, guidelines for prudent underwriting were re-emphasized across the board. Banks that had survived did so often because they stuck to fundamentals: requiring evidence of ability to repay and structuring loans with discipline.

One institutional insight is the role of the Small Business Administration (SBA) in promoting good practice. The SBA 7(a) program, which guarantees loans for small businesses, often requires a business plan as part of the application. But it doesn’t stop there – the bank still must analyze that plan for viability. Many say the process implicitly teaches borrowers to think more in terms of feasibility. In fact, some savvy entrepreneurs come to banks nowadays not just with a business plan, but with an “investment memo” of their own – a concise dossier highlighting why the loan is safe, almost mimicking the style of a credit memo. They might outline risks and mitigants themselves, preempting the bank’s questions. This approach, essentially speaking the bank’s language, can be very effective. It shows the borrower understands the bank’s concerns, and can speed up approval. We see a bit of convergence: entrepreneurs adopting some of the risk-focused mindset (traditionally the bank’s domain), while banks encourage borrowers to share more data (traditionally found in business plans) to facilitate analysis.

Conclusion: Bridging Vision and Vigilance

In high-tier financial journalism fashion, let’s step back and observe the bigger picture. Feasibility studies, business plans, and investment memos are not adversaries; they are complementary threads in the tapestry of a lending decision. The business plan provides the vision and the narrative – crucial for understanding the borrower’s purpose and drive. The feasibility study injects realism, saying, “Dreams are fine, but let’s see if day.” The investment memo is where the bank marries the two, aligning the dream with the bank’s duty of vigilance – it’s the editorial piece that says, “Given the vision and the evidence, here i bank will do, and on what terms.”

For credit committee members and senior risk officers, the interplay of these documents offers a 360-degree view. They’ve learned that a thick business plan full of market buzzwords means little unless the numbers hold water. They’ve seen feasibility studies save them from billion-dollar mistakes – and occasionally, they’ve also seen feasibility studies that were too optimistic (yes, consultants can be wrong too), reinforcing the need for internal skepticism. They rely on their investment memos to cut through information overload and highlight what matters: cash flow, collateral, character, conditions – the classic C’s of credit, refracted through modern analysis.

In the end, what U.S. commercial banks actually need when evaluating a lending opportunity is a combination of the borrower’s information and their own independent analysis. They need the borrower’s input (plans, projections, feasibility indications) to have something to analyze, but they will trust, and verify – leaning heavily on independent validation and their internal risk frameworks. The most successful lending outcomes often arise when borrowers understand this and work with banks, not in opposition. That might mean being frank in the business plan about challenges and how they’ll be managed, or proactively providing a feasibility study, or at least key data, without being asked. It also means banks communicating clearly what they need to see – not making borrowers guess the secret formula, but rather guiding them (“We will need to see how you’d perform if sales are 20% lower – do you have analysis on that?”).

In a way, the dynamic between these documents is a dialogue: the business plan says, “Here’s how we’ll succeed;” the feasibility study responds, “Here are the conditions under which that holds true;” and the investment memo concludes, “Given both, here’s how we’ll structure a loan that works.” For senior bank stakeholders, this dialogue must be coherent. If any one of the pieces is out of tune – a business plan that makes claims a feasibility study can’t support, or a feasibility study that doesn’t address the key questions, or a credit memo that glosses over risks – the whole melody of the deal can sour, leading to either a declined loan or a troubled one down the road.

Ultimately, the goal for the bank is to make safe and sound loans that also help businesses grow – to find that alignment of interests where the borrower’s success means the bank’s loan is repaid with interest, everyone wins. To do that, they sift through optimism and pessimism to find truth. Feasibility studies, business plans, investment memos – each provides a lens. By looking through all of them, a diligent bank can see the deal in depth and in color: the rosy hue of opportunity tempered by the cool blue of reason. And that, as any credit committee member will tell you, is a view worth having before money changes hands.

Sources

• Office of the Comptroller of the Currency (OCC), Comptroller’s Handbook on Rating Credit Risk: discussion of business plan execution risk and loan structuring with covenants

• OCC, Comptroller’s Handbook on Commercial Real Estate Lending: emphasis on feasibility studies, pro forma credibility, and stress-testing in real estate project loans.

• Federal Reserve Bank of Minneapolis, Bank Exposure to Ethanol (2007): example of industry risk (ethanol) where feasibility and downside scenarios (oil/corn price swings) are crucial

• Abrigo, Mary Ellen Biery, “Writing effective credit memos efficiently” (2025): guidance on credit memo best practices (clarity, focus on facts, risk mitigation)

• Chris Nichols, “How to Draft a Better Credit Memo” (2017): advice that the core objective of a credit memo is to highlight key risks and mitigants, aligning with bank credit culture.