Quick answer
A letter of offer is the formal document in which a lender sets out the loan it's prepared to provide: the amount, term, security, fees, repayments and the conditions you must meet before funds are released. It comes after credit approval and before settlement. Once you sign and return it, it normally becomes part of a binding agreement, so it's the moment to read every term carefully.
Key points
- Comes after approval, unlike an indicative offer or conditional approval
- Lists conditions precedent that must be met before drawdown
- Usually has an expiry date for acceptance
- Banks bound by the Banking Code must give small businesses a plain English summary of key terms before acceptance
After weeks of statements, valuations and questions, the letter of offer is the document that finally says yes in writing. It’s also the last easy point to spot a problem, because once it’s signed the terms are much harder to change.
Where does it sit in the loan process?
Business lending usually moves through a few stages, and the names get mixed up:
- Indicative offer or term sheet: a rough outline, often before full assessment. See indicative offer.
- Conditional approval: credit has said yes, subject to things like a valuation.
- Letter of offer: the formal offer, with final numbers and conditions.
- Loan and security documents: the full legal contract, sometimes merged with step 3.
- Settlement: funds are released.
What’s inside a letter of offer?
| Section | What to look for |
|---|---|
| Facility details | Amount, type (term loan, overdraft, line of credit), term, repayment amount and frequency |
| Security | Which properties or assets, whether a general security agreement is included, and who must give a personal guarantee |
| Fees | Establishment, valuation, legal, ongoing and early repayment or exit costs, in dollars where stated |
| Conditions precedent | Everything required before drawdown: valuation, insurance, discharge of other debts, signed guarantees |
| Ongoing conditions | Covenants, annual financial reporting, minimum account turnover |
| Expiry | The date by which you must accept |
What should you check before signing?
- Does it match what you were told? Compare the amount, term and security to your conversations. Differences happen, often because a valuation came in lower.
- Add up the total dollar cost. Put all fees and repayments over the term into our loan cost comparison calculator rather than looking at any single figure.
- Who is guaranteeing? A director or spouse may be listed. They should understand what they’re signing.
- Can you meet the conditions in time? A condition that the ATO debt is paid, or a lease is signed, can stall settlement if it isn’t realistic.
- What happens if you repay early? Some private and short-term loans charge minimum interest periods.
Business-purpose loans generally fall outside the consumer protections of the National Credit Code, so the document itself carries more weight. Banks signed up to the industry’s Banking Code have promised to give a small business a plain English document setting out the key terms and conditions before it accepts a loan offer, and to explain the general reason if a loan is declined. Non-bank and private lenders aren’t bound by that Code, so read their offers just as closely.
Holding an offer that doesn’t quite work? Get a second view on your options.
Example: a revised offer after valuation
A Perth engineering firm is approved for $400k secured by its warehouse. The valuation comes in lower than expected, so the letter of offer arrives at $340k with an added condition: a director’s guarantee and a registered mortgage over a second property. The owners can accept, negotiate, or look elsewhere, perhaps a second mortgage business loan to bridge the $60k gap, or a different lender willing to rely on the warehouse alone.
Not happy with the offer you’ve received?
Sometimes the offer on the table is the best one, and if it’s from your bank and it works, it’s often worth taking. If it falls short, we can look at alternatives. Filling in our form is roughly a sixty-second job, with nothing lodged against your credit history. Your file isn’t hawked to multiple finance companies: one specialist studies it and picks up the phone to you directly. Include accurate figures and the gap you need to close so our first suggestion is a relevant one.
Frequently asked questions
Is a letter of offer legally binding?
Once you sign and return it, and any conditions are met, it generally forms part of a binding contract, often alongside separate loan agreement and security documents. Before you sign it is just an offer, which you can decline or try to negotiate.
Can a lender withdraw a letter of offer?
Yes, in some situations. Offers usually expire if not accepted within a set time, and most allow the lender to withdraw if something material changes, such as a lower valuation or new adverse credit information before settlement.
How long does a letter of offer last?
It varies by lender. Many give a few weeks to accept. If it lapses, the lender may reissue it, sometimes after rechecking your circumstances.
Should my lawyer or accountant review it?
For any significant loan, especially with property security or personal guarantees, it's sensible. Some lenders require independent legal advice for guarantors before they'll settle.
What's the difference between a letter of offer and a loan agreement?
The letter of offer summarises the deal and the conditions. The loan agreement and security documents contain the full legal terms. Some lenders combine them into one document, others issue them separately.