UNDERWRITING GLOSSARY
Stress Test
Financial Stress Test
Analysis of performance under adverse but plausible conditions.
What does Stress Test mean?
Analysis of performance under adverse but plausible conditions. Professionals may calculate, document or apply this concept differently depending on the transaction, accounting method, lender policy and governing documents. Borrowers should confirm the precise definition used in any term sheet or agreement.
Stress Test in context
A lender models a 15% revenue decline to evaluate repayment capacity.
Why it matters in financing
Stress Test can influence how a lender, investor or advisor evaluates risk, pricing, structure, repayment capacity or transaction economics. It should be considered together with the complete financial picture rather than used alone.
Related underwriting terms
Educational information only. This definition is general, may not match a particular lender or contract, and is not financial, accounting, tax or legal advice.