Indicative offer vs Letter of Offer: what's binding, and when

Every secured loan passes through stages, and the paperwork at each stage means something different. The early figure a lender or broker gives you is a guide. The formal written offer is a commitment, with conditions. The signed loan documents are the contract. Confusing the first with the second is one of the most common reasons business owners get caught short at settlement.

This guide walks through what an indicative offer is, what a Letter of Offer adds, why the numbers sometimes move between them, and how to compare offers from different lenders fairly. For a clause-by-clause look at the Letter of Offer itself, read our Letter of Offer explained guide.

What’s the difference at a glance?

	Indicative offer (indicative terms, term sheet)	Letter of Offer	Loan agreement and mortgage
Purpose	Shows the loan the lender expects to provide	Formal written offer on stated terms	The binding contract and the security
Based on	What you’ve told the lender	Information the lender has checked	The accepted offer
Commits the lender?	No	Yes, subject to its conditions	Yes, once conditions are met
Commits you?	No	When you accept and sign	When signed
Typical content	Amount, structure, term, approximate pricing	Amount, term, pricing, fees, security, conditions precedent, exit	Full legal terms, default clauses, mortgage or caveat
What to do	Check it fits your need and timeline	Get your solicitor to review; check every condition	Sign with independent advice; settle

Our glossary entry on the Letter of Offer has the short definition.

Key terms

• Indicative terms: an early, non-binding outline of a likely loan.
• Term sheet: another name for indicative terms, common in larger deals.
• Letter of Offer: the lender’s formal written offer on stated terms and conditions.
• Condition precedent: something that must happen before the lender funds.
• Loan documents: the loan agreement, mortgage or caveat, and any guarantees you sign after accepting the offer.

What is an indicative offer?

An indicative offer is a lender saying, “on what you’ve told us, this is roughly the loan we’d expect to write.” It usually covers the amount, the structure (first mortgage, second mortgage or caveat), the term and the shape of the pricing. Some lenders call it indicative terms, a term sheet or an in-principle indication.

It’s useful because it lets you decide quickly whether to go further. It’s limited because nothing has been verified: not the title, not the existing loans, not the identity of the signatories, not the exit.

What turns indicative terms into a Letter of Offer?

Between the two, the lender checks what it was told. Typical steps:

• Title search. Confirms who owns the property and whether anything else is registered or lodged on it: other mortgages, caveats, easements, priority notices.
• Existing loan balances. Statements confirm what’s owing to the current lender, including any arrears.
• Property assessment. With no formal valuation required, the lender assesses the property itself; see how assessment works without one.
• Entity and signatory checks. Company and trust searches, the trust deed, directors and guarantors.
• Exit evidence. The contract of sale, a refinance plan or the contract or invoices that will repay the loan.
• Credit and identity. Done once you’ve chosen to proceed.

If the checks match what you said, the Letter of Offer usually mirrors the indicative terms.

Why do numbers change between the two?

What changed	Typical effect
More owing on the property than stated	Lower available amount behind the existing lender
An unexpected caveat or second charge on title	Delay, payout required or structure change
Property type different from the description (vacant, rural, specialised)	Different term or amount, or more security
Signatories unavailable or a trust deed that doesn’t allow the loan	Delay while it’s fixed
Exit can’t be evidenced	Shorter term, more security or a decline
A first mortgagee that won’t consent to a second mortgage	Switch to a caveat or a refinance; see first mortgagee consent

Almost every one of these is avoidable by giving complete, accurate information at the start.

What does a Letter of Offer add?

The Letter of Offer is where the deal becomes specific: the loan amount, the term, how interest is handled (prepaid, capitalised or paid monthly), the fees including the assessment fee, the security to be taken, any guarantees, the conditions precedent that must be met before funding, and the exit the loan relies on. You accept it by signing, and then the loan documents are prepared.

Two things are worth knowing:

• Conditions still apply. Funding depends on every condition precedent being satisfied. A condition you can’t meet by your settlement date is a problem now, not later.
• Small business protections apply to standard terms. ASIC explains that unfair contract term protections cover standard form financial contracts with small businesses (fewer than 100 employees or turnover under $10 million) where the upfront price is $5 million or less. ASIC gives the example of a loan term allowing the lender to change any term on five days’ notice as one that may be unfair.

What happens between acceptance and settlement?

Once the offer is accepted, the lender’s solicitors prepare the loan agreement, mortgage or caveat, and any guarantees. Before an electronic mortgage is lodged, the lender’s representative must take reasonable steps to verify the identity of each mortgagor under the ARNECC Model Participation Rules, and evidence supporting the lodgment, including identity verification, must be kept for at least seven years. That’s why original ID and an identity check meeting the Verification of Identity Standard, or an equivalent reasonable process, are part of the paperwork.

Then settlement happens, usually through PEXA. Our guide to what happens at settlement covers that stage.

Which conditions precedent come up most often?

Every Letter of Offer lists the things that must happen before money moves. In private secured lending, the usual ones are:

• Signed loan documents and guarantees, with independent legal advice certificates where a guarantor or third-party security provider is involved.
• Identity verification of every borrower, mortgagor and guarantor.
• A clear title, or a plan to pay out and remove anything that would rank ahead of or alongside the new loan.
• Payout figures from any lender being refinanced, and an authority to discharge.
• First mortgagee consent, where a registered second mortgage needs it.
• Evidence of the exit, such as a signed sale contract, a refinance application or the contract that will generate the repayment.
• Insurance over the property, noting the lender’s interest where required.
• Entity documents: company searches, the trust deed, minutes or resolutions authorising the borrowing.

Read the list the day the offer arrives. Anything you can’t deliver by your settlement date should be raised immediately, while there’s still time to change the structure.

What should you ask before relying on indicative terms?

Five questions sort a usable indication from a hopeful one:

1. Who is actually lending? A named direct lender, or a broker’s estimate of what a lender might do?
2. What did they assume? Ask them to list the property value, the existing debt and the exit they used. If any of it is wrong, correct it now.
3. What checks are still to come? Title, identity, credit, entity documents, exit evidence.
4. What could change the amount or term? A good lender will tell you plainly.
5. Can they meet my date? Ask how long from complete documents to funding, and what usually delays them.

Business.gov.au suggests that if an application isn’t successful you ask the lender for feedback and adjust before you try again. The same habit works at the indicative stage: ask what would make the answer firmer.

How should you compare indicative offers?

Headline figures mislead. Compare on the things that actually decide whether the loan works:

1. Net funds in hand after every fee, prepaid interest and cost, not the gross loan amount.
2. Total cost over the realistic term, including any extension fees if the exit runs late. Our guide to the total cost of a short-term loan shows how.
3. Conditions. A cheaper offer that needs a third-party property report, a longer approval or a consent you can’t get may cost you the deal.
4. Who you’re dealing with. A broker’s indicative terms depend on a lender you haven’t spoken to. A direct lender’s terms come from the people who will fund. See direct private lender vs finance broker.
5. Timing. Can they settle by your date?

What could this look like in practice?

Illustrative example: a Brisbane electrical contractor needs $300k to settle the purchase of a small industrial unit in 12 days. Two indicative offers arrive. Offer A shows a larger gross amount but requires a third-party property report with a five-day wait and a broker fee. Offer B is from a direct lender with no formal valuation required, and on the owner’s stated figures (home worth about $1.2m, $480k owing) sits comfortably within an illustrative 70% LVR band of $840k, leaving $360k of headroom behind the bank. The contractor provides title details, loan statements and the purchase contract on day one, the checks match, and Offer B’s Letter of Offer mirrors its indicative terms. Settlement happens on day ten.

Owners in south-east Queensland can read our Brisbane private lender page. If you’re racing a settlement date, see settling a property purchase on time, and if a bank has withdrawn late, bank finance fell through.

Want terms you can rely on? See if you qualify

Start an enquiry with the property, what’s owing on it, the amount and your deadline. There’s no credit check to ask, your details go to one direct lender rather than a panel, and a specialist reads every enquiry. Accurate details now mean the indicative terms you receive are the terms you’re offered. Explore the three structures on our secured business loans page, or check what your property could fund.