Private Loan Term Sheets: Reading the Offer Line by Line

In short: A private loan term sheet sets out the commercial terms before the loan documents are drawn: amount, term, rate, default rate, fees, prepaid interest, security, personal guarantees, conditions and the maximum LVR. Read it for total cost and for what happens when something goes wrong, not just the headline rate. In the sample below, an $800,000 12-month loan at an example 10.95% costs $119,400 in total and pays out $732,400 at settlement.

Key takeaways

Add every line together: on the sample, interest is $87,600 but the total 12-month cost is $119,400.
Prepaid interest and upfront fees come out of the advance, so the net amount is what actually funds your purchase or payout.
The default rate and the extension terms decide what a delay costs. Negotiate them before you sign.
Find out which fees are payable even if the loan never settles.
Conditions precedent, especially the valuation and LVR clauses, decide whether the offer turns into money.
Compare offers over the period you expect to keep the loan; upfront fees weigh more on short terms.

What is a term sheet, and is it binding?

A term sheet, sometimes called an indicative offer or letter of offer, is the lender's summary of the deal it is prepared to do, subject to conditions. It usually comes before the loan agreement, mortgage and security documents are prepared. Most of it is not binding: the lender can still decline if the valuation or its checks turn up a problem, and you can usually walk away. Some parts often do bind you once you sign and return it, such as commitment fees, valuation costs and the lender's legal costs if you do not proceed. Read those clauses first, because they are the part you pay for whether or not the loan settles.

Private term sheets are short, often two or three pages, and terse. Every line matters, and the clauses about default, extension and costs are the ones borrowers tend to skim.

What does a sample private loan term sheet look like?

The sample below is illustrative only (an example, not an offer), for a company buying commercial premises:

Item	Sample wording	What it means
Borrower	Sample Holdings Pty Ltd	The entity that owes the debt
Facility	$800,000 first mortgage loan	The gross amount, before deductions
Purpose	Business purposes: settlement of a commercial property	A business purpose declaration will be required
Term	12 months from settlement	Repay in full at the end
Interest rate	10.95% p.a., fixed for the term	Charged on the gross facility
Interest payment	First 6 months prepaid from the advance, then monthly in advance	$43,800 deducted at settlement
Default rate	Interest rate plus 5% p.a. while any default continues	15.95% p.a. on the whole balance
Establishment fee	2% of the facility, deducted at settlement	$16,000
Exit fee	1% of the facility on repayment	$8,000
Security	First registered mortgage over the property; general security agreement over the borrower	The lender holds the property and the company's other assets
Personal guarantees	Directors' guarantee and indemnity	Directors are personally liable for the whole debt and costs
Maximum LVR	65% of the lender's valuation	The property must value at $1,230,770 or more for the full $800,000
Conditions precedent	Valuation satisfactory to the lender; ID; evidence of exit; insurance	No money until each is met
Costs	Borrower pays the lender's legal costs (estimate $4,500) and valuation ($3,300) whether or not the loan proceeds	Payable even if the deal falls over

What will the sample loan actually cost?

Cost over 12 months	Amount
Interest: $800,000 x 10.95%	$87,600
Establishment fee (2%)	$16,000
Exit fee (1%)	$8,000
Lender's legal costs (estimate)	$4,500
Valuation	$3,300
Total	$119,400 (14.9% of the facility)

At settlement the borrower does not receive $800,000. Deducting six months of prepaid interest ($43,800), the establishment fee ($16,000), legal costs ($4,500) and the valuation ($3,300) leaves a net advance of $732,400. Measured against the money actually received, the year costs about 16.3%, against a headline rate of 10.95%.

That is the number to compare with other offers and with the value of what the loan achieves. Business-purpose loans generally do not carry the comparison rate that consumer credit advertising has to show, so you do the sum yourself; see what a comparison rate includes and hides for why a headline rate understates cost. Private rates are set lender by lender, but lenders' funding costs move with the RBA's cash rate target, which was 4.60% from 30 September 2026; check the current figure when you compare offers.

How do the rate, default rate and extension terms work?

Rate. Is it fixed for the term or variable, and if variable, against what?
Interest payment. Prepaid, capitalised or monthly? If you repay after four months, is unused prepaid interest refunded, or is there a minimum interest period?
Default rate. Which events trigger it (often any breach, such as late financial statements or lapsed insurance, not only a missed payment), whether it is charged on the whole balance, and whether reaching the end of the term without repaying is itself a default.
Extension. Is there an option to extend, at what fee and rate, and does the lender have to agree?

The difference is real money. On the sample, running two months past the term at the 15.95% default rate costs $800,000 x 15.95% x 2/12 = about $21,267, before any default fees or the lender's enforcement costs. An extension for the same two months at the normal 10.95% with an example 0.5% extension fee costs $14,600 + $4,000 = $18,600, and keeps the loan out of default, which matters because a default can trigger cross-default clauses and make any refinance harder. Ask for an extension option in the term sheet, while you still have bargaining power.

Which fees should you question?

Fee	Usual basis (indicative)	What to ask
Establishment	A percentage of the facility, deducted at settlement	Is it payable if the loan does not settle? Is it on top of a broker fee?
Broker or originator	A percentage of the facility	Who is paid, by whom, and is it shown in the offer?
Line or facility	A percentage a year	Charged on the limit or the drawn balance?
Exit or discharge	A percentage or a fixed amount	Payable on early repayment too? Is there a separate discharge fee?
Extension	A percentage of the facility	Available as of right, and at what rate?
Default fees	Fixed charges per event	Which events, and how much each?
Legal and valuation	Actual cost, or an estimate	Is there a cap? Payable if the lender declines?

For what each of these typically looks like, see private loan fees: establishment, brokerage and exit costs.

What do the security, personal guarantee and conditions clauses mean?

Security. A first registered mortgage gives the lender the property. A general security agreement, registered on the PPSR under the Personal Property Securities Act 2009, gives it the company's other assets as well. Look for "all monies" wording (the security covers every debt you owe the lender, now or later) and cross-collateral or cross-default clauses that link this loan to others.

Personal guarantees. A directors' guarantee and indemnity makes each director personally liable for the whole debt, interest and costs, not just a share. A guarantor who is not a director, such as a family member, should get independent legal advice. Read what directors' guarantees commit you to.

Conditions precedent. These are what must happen before any money moves. The one that most often changes the deal is the valuation, because the amount is usually "up to" the LVR of the lender's figure. In the sample, a valuation of $1,150,000 caps the loan at 65% x $1,150,000 = $747,500, which is $52,500 less than the $800,000 offered. Others include identification, evidence of the exit, insurance noting the lender, and the business purpose declaration.

Conditions subsequent and undertakings. Obligations after settlement, such as supplying financial statements or keeping insurance current. Breaching them can be a default even when every payment is on time.

How do you compare two term sheets?

For illustration, two offers for the same $800,000, with the same legal and valuation costs and interest paid only for the months used (no minimum period):

Offer A: 10.95% a year, 1.5% establishment fee ($12,000), 1% exit fee ($8,000)
Offer B: 9.95% a year, 3% establishment fee ($24,000), no exit fee

Repaid after	Offer A total	Offer B total	Lower-cost offer
3 months	$41,900	$43,900	A, by $2,000
6 months	$63,800	$63,800	Equal
12 months	$107,600	$103,600	B, by $4,000

The lower rate wins only if you keep the loan long enough to recover its higher upfront fee. If your exit is a sale due in three months, Offer A costs less; if the exit is a refinance after a full year of financials, Offer B does. Decide your realistic term first, then compare. For the wider cost picture, see what private lending actually costs, and model your own terms with the bridging finance calculator.

What should you ask before you sign the term sheet?

Clause	Question to ask
Who is lending	Which entity is the lender, and is it the one on the documents? Check it on ASIC's registers and ABN Lookup.
Net advance	Exactly how much will be paid out at settlement, after every deduction?
Fees on failure	What do I pay if the loan does not settle?
Default	What are the default events, and what is the default rate charged on?
Term end	What happens on the last day if I have not repaid? Is there an extension option?
Early repayment	Is there a minimum interest period or an exit fee if I repay early?
Valuation	Who values, on what basis, and what happens if it comes in low?
Security	Is there an all-monies or cross-collateral clause?

Have a solicitor read the term sheet before you sign it, not after the loan documents arrive. When you want more than one offer to compare, post one private loan request on ADS and 200+ verified lenders and brokers can ask about it.

Frequently asked questions

Is a private loan term sheet binding?

Mostly not: the lender can still decline if the valuation or its checks raise a problem, and you can usually walk away. But clauses about fees and costs often bind you once you sign, such as paying the lender's legal and valuation costs whether or not the loan settles. Read those clauses before you sign and return it.

What is prepaid interest on a private loan?

It is interest for an initial period, often several months, deducted from the loan at settlement instead of being paid monthly. You receive less than the facility amount: in the sample, $43,800 of prepaid interest, with fees and costs, reduces an $800,000 facility to $732,400 net. Ask whether unused prepaid interest is refunded if you repay early.

What is a default rate on a private loan?

It is a higher rate charged while the loan is in default, usually the normal rate plus a margin. In the sample it is 10.95% plus 5%, or 15.95%, on the whole balance. Check what counts as a default (often more than a missed payment), when the higher rate starts, and whether reaching the end of the term without repaying triggers it.

How do I compare private loan offers?

Total every cost (interest, establishment, broker, line, exit and legal fees) over the period you expect to keep the loan, then compare the net amount each offer pays out. Upfront fees weigh more on short loans: in the example, the lower-rate offer with the higher fee costs more if repaid after three months and less if kept for twelve.

Why does the LVR clause matter if the offer states an amount?

Because the amount is usually "up to" a percentage of the lender's valuation. In the sample, a 65% LVR on a $1,150,000 valuation caps the loan at $747,500, which is $52,500 below the $800,000 offered. If your plan depends on the full amount, ask how the lender values before you pay for the valuation.

Should I get legal advice on a private loan term sheet?

Yes. A solicitor can explain the security, the personal guarantees, any all-monies and cross-default clauses, and the costs you are committing to. Guarantors in particular should get independent advice. Doing it at the term sheet stage, before you sign and pay fees, gives you room to negotiate.

Sources

Cash rate target — Reserve Bank of Australia
Personal Property Securities Act 2009 — Federal Register of Legislation
Search ASIC registers — Australian Securities and Investments Commission
ABN Lookup — business.gov.au

Rates checked as at 24 October 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.

General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.

Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.