Credit Case Interview Framework
This conversation was generated using Cook'd AI's career assistant and reviewed by Fallon Han from our editorial team for accuracy.
I have a credit case question in my banking interview. The company snapshot says the borrower is a mid-market UK distributor, revenue up 8 percent last year, but EBITDA margin fell from 12 percent to 7 percent. They are asking for a revolving facility to fund inventory ahead of a seasonal build. As a final-year master's student in the U.K. on a graduate visa, coming from accounting, how should I judge whether the lender should be comfortable extending credit?
Start with the borrower's ability to repay, then move to downside protection. On the face of it, revenue growth is positive, but the margin drop is a red flag because it suggests weaker pricing, rising input costs, or operational inefficiency. For a distributor, working capital can also absorb cash quickly during a seasonal build, so you want to know whether the inventory increase is matched by strong receivables quality and reliable supplier terms. I would say the lender should not be fully comfortable yet. The right answer is conditional comfort, subject to a tighter credit view and protections.
What specific red flags should I call out in the interview so I do not sound too generic?
Focus on four concrete points. First, margin compression despite revenue growth, which may mean the business is growing unprofitably. Second, dependence on seasonal inventory, because stock can become obsolete or slow-moving. Third, if the company is using the revolver to fund permanent working capital rather than a short-term peak, that is a risk. Fourth, check customer concentration and overdue receivables, since a few weak customers can quickly turn an apparently healthy distributor into a liquidity case. If you mention all four, you sound commercial and credit-aware.
How would I explain covenant protections for this type of borrower?
Think of covenants as early warning signals and discipline tools. A common package would be a leverage covenant, a minimum interest cover covenant, and a fixed charge or cash flow cover test if the structure is tighter. Because this is a revolving facility, a borrowing base tied to eligible inventory and receivables would be very relevant. You could also ask for monthly management accounts, aged debtors reporting, and limits on capex or dividends. If the business is cyclical, a seasonal covenant holiday can be considered, but only if the lender has clear visibility and strong reporting.
If the interviewer pushes me and asks whether I would lend or decline, what is the best short answer?
Say you would be cautious but not automatically negative. For example: I would be prepared to support the facility if diligence confirms that the margin decline is temporary, inventory is genuinely short-term, and cash conversion remains strong. However, I would want a tighter structure with a borrowing base, quarterly or monthly covenant reporting, and headroom under leverage and interest cover tests. If the due diligence shows persistent margin erosion, weak receivables, or overstretched liquidity, I would lean toward declining or reducing the amount. That answer shows balance, judgment, and risk awareness.
Can you give me a simple interview structure I can remember under pressure?
Use a four-step structure: business quality, financial performance, working capital risk, and lender protection. First, explain what the company does and whether the model is stable. Second, comment on the trend in revenue, margins, and cash generation. Third, identify the key liquidity pressure points, especially inventory and receivables. Fourth, state what covenants or security you would want before approving credit. If you present it in that order, your answer will sound organised and commercial rather than like a textbook response.