State the exact departure and quantify its effect before describing mitigants. A reserve, guaranty or lower loan request may change risk, but only the authorized lender decision can approve an exception.
An exception memo should make the decision harder to misunderstand. State which requirement the request does not meet, how large the departure is and what evidence supports the proposed response. Avoid beginning with a list of sponsor strengths that leaves the actual exception unclear.
The OCC handbook’s exception discussion describes written justification and lender review and approval. This borrower-preparation template is not the bank’s credit approval form. It cannot authorize a policy exception or change a contract.
Establish the actual test
Identify whether the issue is a lender policy, program requirement, legal restriction, document covenant or missing information. These are not interchangeable. A memo asking for a discretionary credit judgment cannot waive a rule that the decision-maker lacks authority to change.
Record the source, date, measurement convention and scope of the test. If the policy itself is not available, identify the lender communication and unresolved interpretation. Do not invent a supposedly standard minimum to make the request look precise.
Blank memo structure
memo_section,statement,support_ref,responsible_party,decision_status
requested_exception,,,,open
measured_departure,,,,open
proposed_mitigant,,,,proposed
residual_risk,,,,open
alternative,,,,proposed
decision,,,,not_decidedField instructions
| Section | Write | Avoid |
|---|---|---|
| requested_exception | Specific departure and requested decision | A vague request for “flexibility” |
| measured_departure | Reproducible calculation using the applicable convention | Switching debt-service definitions to hide the gap |
| proposed_mitigant | Action, amount, timing and enforceability evidence | Listing a proposed reserve as funded |
| residual_risk | What the mitigant does not solve | Treating sponsor reputation as a calculation |
| alternative | A feasible structure without the same departure, if available | Assuming an unverified capital source |
| decision | Actual authority, scope and conditions after determination | Calling a conversation an approval |
Completed hypothetical memo
memo_section,statement,support_ref,responsible_party,decision_status
requested_exception,Hypothetical 1.20x coverage against a communicated 1.25x policy test,POLICY-COMM-1,Loan officer,not_decided
measured_departure,"$480,000 NCF / $400,000 service = 1.20x; $20,000 NCF shortfall to 1.25x",MODEL-1,Analyst,documented_for_example
proposed_mitigant,"$50,000 cash reserve proposed; availability and control unresolved",RESERVE-PROPOSAL-1,Sponsor,proposed
residual_risk,Reserve does not change recurring NCF or eliminate maturity risk,MODEL-1;EXIT-1,Analyst,open
alternative,"At 8% constant and 1.25x sizing: $4.8m loan; $200,000 additional equity versus $5m",MODEL-ALT-1,Sponsor,proposed
decision,No approval recorded; lender authority and conditions remain pending,DECISION-LOG-1,Authorized lender reviewer,not_decidedThe fictional test is 1.25× coverage. At $480,000 cash flow and $400,000 annual service, coverage is 1.20×. Meeting 1.25× at the same service would require $500,000 cash flow, leaving a $20,000 annual gap.
A proposed $50,000 reserve can provide a finite cash buffer if properly funded and available. It does not turn $480,000 recurring cash flow into $500,000. Its permitted uses, control, replenishment and release conditions remain separate underwriting and documentation questions.
An alternative uses an assumed 8% annual debt-service constant. Maximum service at 1.25× is $384,000; dividing by 8% supports $4.8 million, compared with the proposed $5 million. The alternative requires $200,000 more equity, before any other sizing constraints or funding changes. This is an illustrative calculation, not a loan quote.
Match the mitigation to the weakness
A reserve may address temporary cash timing but not a permanently weak lease. A lower advance may improve leverage but leave completion risk unchanged. A guaranty depends on its scope and the guarantor’s capacity and willingness. Explain the causal connection and the remaining exposure rather than simply total the number of mitigants.
Include a downside and a monitoring plan where relevant. Identify what evidence would disprove the proposed recovery and which action would follow. A future improvement should be supported as a scenario, not included as an accomplished fact.
Preserve the decision trail
Keep the submitted version, response and final terms together. If the lender changes the test, declines the exception or imposes conditions, revise the financing analysis before proceeding. Do not reuse a prior approval for a different amount, borrower or property without confirmation.
The memo is complete when an informed reviewer can locate the departure, reproduce its size, evaluate the proposed response and see who actually decided. A persuasive narrative without those controls leaves the financing risk unresolved.
Sources and evidence
- OCC — Commercial Real Estate LendingPrinted pages 28–29: Exceptions to General Lending Policy · Checked 2026-10-21 · Handbook version 2.0 published March 2022. Supervisory context; these original templates are optional and do not establish lender policy.
Source dates and applicability matter. Report an error or a changed source.