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How-to guides
Tabs in the order a reviewer expects, clear colour conventions, and the metrics a lender actually decides on.
5 min read · Last updated Oct 7, 2026 · Educational only, not investment advice
A credit model answers a narrower question than an equity model: can this borrower service and repay its debt, and what happens to the lender if things go wrong? You don't need a perfect valuation. You need clean historicals, a believable base case, a real downside, and the credit metrics that come out of each.
Build it so someone else can check it in ten minutes. Clarity beats cleverness.
| Tab | What goes in it |
|---|---|
| Cover | Case name, facility, version, date and your name. |
| Read me | The colour key, units, sources and any simplifying assumptions. |
| Inputs | Every assumption in one place: growth, margins, capex, working capital, rates, fees. |
| Historicals | Reported figures from the case, typed in blue, with the source noted. |
| Sources & uses | Where the money comes from and where it goes. It must balance. |
| Operating build | Revenue, EBITDA, capex and working capital by year, driven by the inputs. |
| Debt schedule | Each tranche: opening balance, amortization, sweep, closing balance and interest. |
| Credit metrics | Leverage, interest coverage, fixed charge coverage, free cash flow and covenant headroom. |
| Downside | The stress case and a sensitivity grid on the drivers that matter. |
| Recovery | Enterprise value at default and how it flows down the capital structure. |
| Lender returns | Yield to the lender including OID and fees. |
Use the standard banking colours so a reviewer can tell inputs from formulas at a glance.
One rule
Never type a number into a formula. If a growth rate or margin drives the model, it belongs on the Inputs tab where everyone can see it.
Start here, because it fixes the debt you're analysing. Sources are the new loan, any existing debt that stays, and any equity. Uses are the refinancing, the acquisition or capex being funded, fees and cash to the balance sheet. The two columns must total the same amount.
Pro forma total debt comes straight out of this tab. Every leverage number later depends on getting it right.
Model each tranche separately. For floating-rate debt, the rate is the base rate (with any floor) plus the spread. Include mandatory amortization, then any cash sweep. Interest should be calculated on the right balance, and the schedule should show when each tranche matures.
Common mistake
Forgetting debt that stays in place, or a tranche that matures before the loan you're analysing. Both change the risk.
| Metric | How to calculate it | What it tells you |
|---|---|---|
| Total leverage | Total debt ÷ EBITDA | How many years of earnings the debt represents. |
| Net leverage | (Total debt − cash) ÷ EBITDA | Often the covenant definition. Check which one the terms use. |
| Interest coverage | EBITDA ÷ cash interest | Cushion before earnings fail to cover interest. |
| Fixed charge coverage | (EBITDA − capex − cash taxes) ÷ (interest + scheduled principal) | Whether cash covers all mandatory payments. |
| Free cash flow | EBITDA − interest − taxes − capex − change in working capital | Cash available to repay debt. |
| Covenant headroom | How far EBITDA can fall before a test is breached | How early the lender gets a seat at the table. |
Run the downside through the whole model, not just the EBITDA line, so leverage, coverage and headroom all update. Add a small grid: margin down the side, revenue change across the top, leverage in the cells.
For recovery, estimate enterprise value at default with a conservative multiple of stressed EBITDA, subtract costs, and walk the value down the capital structure in order of priority.
For lender returns, include the upfront discount (OID) and fees, not just the coupon. A loan issued below par earns more than its spread.
The tabs above suit a cash-flow loan to an operating company. Other kinds of private credit are repaid by something else, so the middle of the model changes. Sources and uses, a downside and lender returns stay in every version.
| Loan type | What repays it | Tabs that replace the operating build |
|---|---|---|
| Direct lending | Operating cash flow | Operating build, debt schedule, credit metrics, recovery on stressed EBITDA |
| Asset-based and specialty finance | Collections on a pool of assets | Borrowing base, excess spread, a loss-and-trigger grid, pool wind-down |
| Infrastructure | Contracted payments, after operating costs | Annual operations to CFADS, sculpted debt, coverage summary (DSCR, LLCR, tail), construction security |
| Bridge financing | A planned take-out | Monthly carry with step-ups and fees, interest reserve, extension test and downside |
| AI and tech | Reaching free cash flow, new equity or a sale | ARR bridge and unit economics, compute cost, burn and runway against covenants, recovery on ARR multiples |
Each case's Guided model template is built for its loan type, so start there. See the asset-class primers in Guides for the metrics each one turns on.
Educational only. Nothing in this guide is investment, legal or tax advice. Practice on a case, and never use an employer's confidential documents.