Quick answer
A Letter of Offer is a private lender's written, conditional offer to lend. It sets out the loan amount, term, security, how interest is handled (prepaid, capitalised or paid as you go), the assessment fee and other costs, any guarantees, the conditions that must be met before funding and when the offer expires. Accepting it starts the formal loan documents, so read it as carefully as the contract that follows.
Key points
- The Letter of Offer turns an enquiry into concrete, written terms
- Conditions precedent list everything that must happen before funds are released
- The security section names each property and whether the lender sits first, second or by caveat
- Check default, extension and early repayment terms as closely as the headline amount
- Have your solicitor review it before you accept
Up to the Letter of Offer, everything about a private loan is conversation. You’ve described the property, the lender has looked at it, and numbers have been discussed. The Letter of Offer is where those numbers are written down, with conditions attached, for you to accept or decline.
That makes it the most important document you’ll read before the loan documents themselves. It’s usually only a few pages, but every line has a consequence: how much you’ll receive at settlement, what security you’re giving, what happens if the exit runs late and what it costs to leave early. This guide walks through a typical private lender’s Letter of Offer section by section, explains the terms you’ll meet, and flags the clauses that deserve a second read.
Key terms at a glance
- Conditions precedent — things that must happen before the lender releases funds.
- Security — the property or properties the loan is secured against, and the type of interest registered (first mortgage, second mortgage or caveat).
- Guarantor — a person or company that promises to repay if the borrower doesn’t.
- Prepaid interest — interest for an agreed period set aside from the loan at the start.
- Capitalised interest — interest added to the loan balance as it accrues, paid at the exit.
- Discharge — the formal release of the mortgage or withdrawal of the caveat once the loan is repaid.
- Expiry date — the date the offer lapses if not accepted.
Where does the Letter of Offer fit in the process?
For a private property-secured business loan, the sequence typically runs:
- Enquiry and initial discussion.
- Assessment of the property, equity, exit and borrower.
- Letter of Offer issued.
- You review it with your solicitor and accept.
- Formal loan documents prepared: loan agreement, mortgage or caveat, guarantees.
- Documents signed, identities verified, conditions met.
- Settlement and release of funds.
Our how it works page shows the same journey from our side. The key point is that the Letter of Offer sits between assessment and documents. Its job is to make sure everyone agrees on the terms before solicitors start drafting.
What does a Letter of Offer include?
Most private lenders’ offers cover the same ground, even if the layout differs. Use this table as a reading guide.
| Section | What it says | What to check |
|---|---|---|
| Parties | The lender, the borrower and any guarantors or security providers | Entity names and ABN/ACN are exactly right, including the trustee if a trust is involved |
| Loan amount | The total facility | Whether fees or prepaid interest come out of it, and what you’ll actually receive at settlement |
| Purpose | The business purpose of the loan | That it accurately describes what the money is for |
| Term | The length of the loan and the repayment date | That the term covers your exit with a buffer |
| Interest arrangement | Whether interest is prepaid, capitalised or paid as you go | How much of the loan is set aside, and the balance owing at the exit |
| Security | Each property, and whether it is a first mortgage, second mortgage or caveat | Every property listed is one you expected to offer |
| Guarantees | Who is guaranteeing the loan | That guarantors understand they are personally liable |
| Fees and costs | The assessment fee, legal costs and other charges | That nothing appears later in the loan agreement that isn’t here |
| Conditions precedent | What must happen before funding | Which conditions you control and how long they’ll take |
| Default and extension | What happens if the loan isn’t repaid on time | Extension terms, default charges and notice periods |
| Early repayment | Whether you can repay early, and on what terms | Any minimum interest period or exit charge |
| Expiry | When the offer lapses | That you can accept and meet the conditions in time |
What are conditions precedent, and why do they matter?
Conditions precedent are the to-do list between acceptance and funding. Common examples in private secured lending include:
- signed loan documents and verified identity for every signatory;
- a payout figure from any lender being repaid at settlement;
- for a second mortgage, any consent the first mortgagee requires. See how second mortgages rank for why;
- a copy of the trust deed and any variations where a trust owns the property;
- current insurance over the security property;
- evidence supporting the exit, such as a signed sale contract.
Most delays between offer and settlement come from these conditions, not from the lender. Read the list on the day you receive the offer and start on any item you control straight away. Funding is possible within 24–48 hours for up to $5m once documents are in, but “once documents are in” is the phrase doing the work.
How is interest shown when there are no monthly repayments?
Private loans often have no monthly repayments, because interest can be prepaid or capitalised. The Letter of Offer should make the mechanics clear:
- Prepaid: an amount is set aside from the loan at settlement to cover interest for an agreed period. You receive less in hand, but nothing is due monthly.
- Capitalised: interest is added to the balance as it accrues. You receive more at settlement, but the amount owing at the exit is higher.
Either way, interest is still paid; the question is when. Check the projected balance at the end of the term against your exit. Our page on prepaid or capitalised interest explains how to choose between them. Pricing itself is set on the deal’s security, LVR, term and exit, so two offers on different properties won’t look alike.
If you’re preparing for an offer and want to see what yours might look like, you can start an enquiry here.
Which clauses deserve a second read?
The amount and term get all the attention. These clauses deserve as much:
- Default terms. What counts as a default, what charges apply and how much notice you get.
- Extension terms. Whether an extension is possible, how to ask and what it costs. Our loan term extensions guide covers this in depth.
- Early repayment. Whether there is a minimum interest period if you repay sooner than expected.
- Partial release of security. If more than one property is offered, how one can be released, usually by paying down an agreed amount.
- Guarantees. Exactly who is guaranteeing what. The government’s business.gov.au guidance reminds borrowers that if a secured loan isn’t repaid, the lender can take the security to cover its losses, and suggests deciding in advance who will act as guarantor. If a family member is offering their property, see our page on third-party security.
There is also a legal backstop worth knowing about. ASIC explains that unfair contract term protections extend to standard-form small business contracts, including business loans, where at least one party employs fewer than 100 people or has turnover under $10m, and the upfront price is no more than $5m. Terms setting out the main subject matter and the upfront price aren’t covered, but contingent charges such as default fees can be challenged. That doesn’t replace reading the document; it simply means grossly one-sided terms aren’t automatically safe for the lender either.
Illustrative example: A Melbourne printing business is offered a $600k second mortgage over the owner’s warehouse, which is worth around $2m and has $800k owing to a bank. Total debt would be $1.4m, around 70% of the warehouse’s worth. The Letter of Offer sets a 9-month term with interest capitalised, lists the warehouse as the only security, names both directors as guarantors, sets out the assessment fee, and makes funding conditional on the bank’s written consent, a payout figure for an existing equipment loan and a certificate of currency for the building’s insurance. The owner’s solicitor notices the exit, a refinance with the bank after the year-end accounts are finalised, is realistically eight months away and asks whether 12 months is possible. The lender agrees, and the offer is reissued before acceptance.
Can you negotiate a Letter of Offer?
Within reason. Points commonly discussed before acceptance include:
- Term length, to give the exit a sensible buffer;
- Interest arrangement, prepaid versus capitalised;
- Release mechanics where more than one property is offered;
- Timing of conditions, such as when the exit evidence must be provided.
The amount and price follow from the property, the LVR, the term and the exit. If you want those to change, the conversation is usually about changing one of those inputs, for example by adding a second property as security or shortening the term.
What happens after you accept?
Once you sign and return the offer, the lender instructs its solicitors to prepare the loan agreement and security documents. Your solicitor reviews them against the Letter of Offer, you sign and verify identity, the conditions are satisfied and settlement is booked. At settlement, existing lenders being repaid are paid out, the new mortgage or caveat is lodged and funds are released as directed. From then on the security is part of the public record: in Victoria, for instance, a register search statement lists mortgages and caveats among a property’s encumbrances. Our guide to what happens at settlement covers that day in detail, and the costs guide explains each fee you’ll see.
Ready for an offer you can actually read? Start here
A clear Letter of Offer comes from a clear enquiry. When the lender knows the property, every balance owing on it, the purpose and the exit from the start, the offer you receive is the offer you settle on, without surprises at the document stage.
Begin your enquiry in about a minute. There’s no credit check to enquire, your details stay with one lender rather than being circulated to many, and a specialist from fundU, the direct lender behind this site, reviews it personally. Accurate answers now mean a Letter of Offer that holds.
Frequently asked questions
Is a Letter of Offer the same as the loan contract?
No. The Letter of Offer sets out the agreed terms and conditions; once you accept it, solicitors prepare the formal loan agreement, the mortgage or caveat and any guarantees. Those documents should reflect the offer exactly, which is why your solicitor compares them.
Does accepting a Letter of Offer commit me to anything?
It can. Accepting may make certain costs payable, such as legal costs incurred in preparing documents, even if you later decide not to proceed. The offer itself will say what applies, so read that section before you sign.
What is an assessment fee?
It is the fee for assessing and arranging the loan. It is small, varies from loan to loan and is shown on the Letter of Offer, so you know the amount before you commit.
Can I negotiate the terms in a Letter of Offer?
Some terms, yes. The term length, whether interest is prepaid or capitalised, and how and when a security property can be released are often discussed before acceptance. The amount and price depend on the security, LVR, term and exit, so changing those usually means changing the deal itself.
How long is a Letter of Offer valid for?
Each offer states its own expiry date. If it lapses before you accept, or before the conditions can be met, the lender may need to reconfirm the details and reissue the offer.
What happens after I sign the Letter of Offer?
Solicitors prepare and send out the loan documents, you sign them and verify your identity, conditions such as payout figures and consents are satisfied, and settlement is booked. Funding is possible within 24–48 hours for up to $5m once documents are in.