AI-Driven Due Diligence: Faster, Smarter Credit Underwriting

How Modern Lenders Are Using AI to Transform the Diligence Process

Due diligence is the backbone of private credit. It determines whether a deal is fundable, what risks matter, how covenants should be structured, and whether the borrower belongs in the portfolio. But traditional credit diligence is slow, manual, and highly inconsistent across analysts and deal teams.

In a market where private credit AUM has surged past $5 trillion, funds can no longer afford to:

This is why private credit is shifting toward AI-driven due diligence — systems that automate the heavy lifting, reduce risk, and allow analysts to focus on judgment, structuring, and portfolio impact.

This article explains how AI transforms underwriting, what tasks are automated, and what a modern diligence process looks like inside an AI-enabled credit platform.

1. Why Traditional Credit Due Diligence No Longer Works

Traditional diligence depends on:

This creates four huge problems.

1. Slow Underwriting

Deals move quickly — borrowers and sponsors will not wait two weeks for a lender to get comfortable.

2. High Risk of Missing Information

Even great analysts miss:

A single missed detail can undermine the entire deal.

3. Data Fragmentation

Borrower details live across:

No single source of truth exists.

4. Underwriting Inconsistency

Every analyst writes memos differently.
Every PM evaluates risk differently.
Every deal feels like a fresh start.

This variability leads to weak discipline and unpredictable outcomes.

2. What AI-Driven Due Diligence Actually Means

AI-driven due diligence does not replace analysts.
It replaces the repetitive, error-prone, time-consuming parts of underwriting.

AI handles:

Analysts handle:

This is the ideal division of labor.

3. How AI Transforms Each Step of the Underwriting Process

AI improves diligence across eight critical workflows.

1. CIM Analysis & Business Understanding

AI can summarize a 100-page CIM in seconds:

It also highlights contradictions between sections — something humans rarely catch.

2. Financial Extraction & KPI Calculations

AI pulls financials directly from:

It auto-builds:

Days of manual spreading become minutes.

3. Covenant Modeling & Legal Analysis

AI reads full credit agreements and extracts:

It then builds a structured covenant map of the entire deal.

This eliminates the risk of missing legal details buried in footnotes and long definitions.

4. Amendment & Redline Review

Amendments are one of the most opaque areas of private credit.

AI identifies:

Amendment analysis becomes a 30-second exercise — not a multi-hour legal review.

5. Risk Flagging & Deterioration Signals

AI detects red flags including:

These signals become the basis for deeper analyst investigation.

6. Scenario Analysis & Stress Testing

AI automatically runs:

This gives PMs instant visibility on downside protection.

7. Automated Credit Memo Drafting

AI drafts 60–80% of the memo automatically:

Analysts refine, add judgment, and finalize.

8. Portfolio Fit & Strategy Alignment

AI evaluates how the new loan fits within:

This prevents PMs from taking great standalone deals that damage overall portfolio balance.

4. Why AI Due Diligence Reduces Portfolio Risk

The biggest failures in private credit come from missed signals, not bad intent.

AI eliminates:

Funds that use AI catch deterioration earlier, negotiate better structures, and protect LP capital more effectively.

5. What an AI-Enabled Due Diligence Workflow Looks Like

Here is the new, modern underwriting process:

Step 1 — Upload documents
CIMs, models, agreements, filings → uploaded or auto-fetched.

Step 2 — AI extracts everything
KPI tables, covenants, financials, definitions, charts.

Step 3 — AI drafts summaries
Business overview, model insights, structural risks, diligence gaps.

Step 4 — Analysts validate critical items
Sponsor behavior, management credibility, forward assumptions.

Step 5 — AI runs scenarios
Recession cases, inflation shocks, liquidity stress tests.

Step 6 — AI generates IC-ready materials
Slides + memo foundation.

Step 7 — PM makes final decision
Data-backed, complete, and far more accurate.

This workflow is 2–4x faster and fundamentally more reliable.

6. Why Every Private Credit Fund Will Adopt AI Due Diligence

This shift is inevitable for four reasons:

1. Deal velocity is increasing

Fast lenders win deals.
Slow lenders lose them.

2. Documentation complexity is growing

Credit agreements are now thousands of pages across amendments.

3. LPs expect deeper transparency

Better diligence → better reporting → easier fundraising.

4. Manual underwriting creates operational risk

The biggest blowups happen when funds trust spreadsheets more than systems.

7. Final Takeaway: AI-Driven Due Diligence Is Becoming the New Standard

The private credit market is now too big, too complex, and too fast-moving for traditional underwriting. AI delivers:

Analysts aren’t being replaced — they’re being augmented with the most powerful tools ever built for credit.

The future of private credit underwriting is clear:

AI handles the work.
Analysts handle the judgment.
PMs handle the decisions.

Funds that adopt this workflow will outcompete — in speed, in quality, and in portfolio performance.