Reading a business loan letter of offer, clause by clause

The letter of offer is where a loan stops being a quote and becomes a commitment. It’s also where the details that matter most are easiest to skim past. This page gives you a checklist to read one carefully, and a simple way to compare two side by side.

What should every letter of offer tell you?

Heading	What to look for
Borrower and guarantors	Exactly who is borrowing and who is guaranteeing
Loan amount	The approved amount
Net payout	What you’ll actually receive after deducted fees
Term	Start and end dates
Repayments	Amount, frequency and start date
Pricing	How cost is calculated, fixed or variable
Fees	Every fee, when it’s charged and how
Balloon or residual	Any lump sum at the end
Security	What’s being charged: asset, business assets, property
Conditions precedent	What must happen before settlement
Covenants	Ongoing promises while the loan runs
Default	What counts as default and what follows
Early payout	How the payout is calculated
Expiry	When the offer lapses

How do you compare two letters?

Put them in two columns under the headings above. Then:

1. Calculate the total cost of each in dollars. See total cost.
2. Convert repayments to the same frequency.
3. Compare security and guarantees, not just price. See guarantees and security.
4. Flag any condition you’re not sure you can meet.
5. Check the default clause for anything that seems easy to trigger.

Which clauses deserve extra attention?

• Conditions precedent. A valuation that must come in at a certain figure, documents you don’t have yet, or consents from other lenders.
• Financial covenants. Requirements to keep certain ratios or provide accounts by a deadline.
• Events of default. Some go beyond missing a payment, such as a change in ownership, a court judgement or a breach of any other loan.
• Cross-default. A default on another loan can count as default on this one.
• “All monies” security. Security that covers any debt to the lender, not just this loan.

Illustrative example. A Penrith logistics company receives two letters of offer for a $250,000 facility. They look similar on cost. Side by side, Offer A requires quarterly management accounts within 30 days and treats any missed deadline as a default. Offer B requires annual accounts only. The company’s bookkeeper works part-time, so the company accepts Offer B and avoids a covenant it would struggle to keep.

What questions should you ask before accepting?

• Is this offer conditional, and on what?
• What will I receive after fees?
• Can you show me the payout figure at the halfway point?
• Which covenants apply, and what happens if I breach one?
• Are any terms negotiable?
• When does the offer expire?

Ask in writing and keep the answers. Small business loan contracts are covered by unfair contract term protections that ASIC explains, but understanding the terms before signing is far better than disputing them later.

What should you do in the days before accepting?

Most letters of offer give you a window to accept. Use it well:

1. Day one: read the whole letter, not just the summary page. Highlight anything you don’t understand.
2. Day two: build your comparison table under the headings above, with every offer you’re considering.
3. Day three: send your questions to the lender in writing. Ask for a payout example and a full fee list if they aren’t included.
4. Before the deadline: if guarantors are involved, make sure they’ve had time to get independent advice.
5. Accept only once every condition looks achievable and you know what each clause means.

Red flag	Why it matters
Expiry in 24 hours with pressure to sign	Leaves no time to compare or get advice
Fees requested before the letter is issued	Legitimate lenders rarely need large upfront payments
Blank spaces or missing schedules	You may be agreeing to terms you haven’t seen
Conditions you can’t meet	The loan may not settle, leaving you without funds

If something in the letter doesn’t match what you were told on the phone, ask for it to be corrected before signing. The written terms are the ones that count.

Want a second pair of eyes on the options?

We help you compare offers on these headings before you commit. Enquiring doesn’t touch your credit file; a check only comes up once you decide to go ahead. We don’t pass your details around a list of lenders. A real person explains what each option’s terms mean for your business, in plain English.

Please be accurate on the form so the options we bring are ones you can actually accept. Start your enquiry, or work out the total cost of an offer in the loan offer comparer and then talk to us.