Quick answer
Indicative terms are a lender's early written outline of the loan it is prepared to offer, subject to conditions. They set out the amount, the security position, the term, how interest is handled, every fee and the conditions to be met before funding. Reading them carefully, especially the costs, extension terms and early repayment rules, lets you compare offers on the total cost and avoid surprises.
Key points
- Indicative terms outline the offer before formal documents
- Check amount, security, term, interest treatment and every fee
- Look closely at conditions, extensions and default provisions
- Compare offers on total dollar cost over the realistic term
- Ask questions before you accept, not after
What indicative terms are for
After a lender assesses a secured business loan, it usually sets out its proposal in writing before formal documents are prepared. This document goes by different names: indicative terms, a term sheet, an indicative offer or a conditional approval. Its purpose is to let the borrower see exactly what is proposed and decide whether to proceed.
It is the best moment to ask questions. Once documents are drawn and signed, changes are harder. Reading the terms carefully, line by line, protects you and makes comparison between offers meaningful.
The core terms
Borrower and guarantors. Who is borrowing and who is guaranteeing. Check entity names, ABNs or ACNs and that every guarantor is correctly identified.
Loan amount. The gross amount of the loan. Note whether fees and prepaid interest are deducted from it, which affects the cash you actually receive.
Security. Which properties, and in what position: first mortgage, second mortgage or caveat. Make sure every property listed is one you intend to offer.
Term. How long the loan runs. Compare it with your realistic exit timeline plus a buffer.
Interest. How interest is calculated and handled: prepaid, capitalised or monthly. Our guide on prepaid and capitalised interest explains the effect on cash and peak debt.
Fees and costs
Every cost should be listed. Common items include:
- establishment or application fees
- the lender’s legal costs for documents, registration or lodgement
- title searches and administrative costs
- discharge or withdrawal costs at the end of the loan
- any ongoing fees during the term
Add them together with the interest to get the total cost in dollars over the realistic term. The bridging cost estimator does this from the figures in your terms and shows the cash you receive and the balance at exit.
Conditions precedent
Indicative terms are usually conditional. Conditions might include satisfactory title searches, identification of all parties, confirmation of the existing mortgage balance, first mortgagee consent for a second mortgage, evidence of the exit, independent legal advice for guarantors and building insurance. Read the list carefully, identify anything that could take time, and start on it immediately.
Have a specialist walk you through your terms if anything is unclear.
Extension and variation terms
Find out what happens if the exit takes longer than the term. Is an extension available, and on what basis? Is there a fee? Does the interest arrangement change? The loans we arrange are flexible and can stay in place if needed, but you should understand how that works before you start.
Default provisions
Most loan terms include provisions that apply if the borrower defaults, for example by not repaying at the end of the term. These may include default interest, which is higher than the standard rate, and enforcement rights. Understand when default provisions apply and how much they would cost. Our guide on default clauses and default interest covers this in depth.
Early repayment
If the sale settles early or a refinance arrives sooner than expected, can you repay early? Is there a minimum interest period? Is unused prepaid interest refunded? These questions can make a significant difference to the total cost. See early repayment and discharge.
Comparing two offers
When comparing indicative terms from different lenders, use the same assumptions for both:
| Comparison point | Why it matters |
|---|---|
| Cash received at settlement | Fees and prepaid interest reduce it |
| Total cost over the realistic term | The fairest single comparison |
| Balance at exit | Must be covered by the exit |
| Extension terms | Protects you if the exit slips |
| Early repayment terms | Rewards an early exit |
| Conditions | Some may be harder or slower to satisfy |
A cheaper-looking offer with strict extension terms or a long minimum interest period can cost more in practice.
Illustrative example
Illustrative only. Two lenders offer a $500,000 second mortgage for nine months. Offer A has a lower establishment fee but a twelve-month minimum interest period and no refund of prepaid interest. Offer B has a higher establishment fee but charges interest only for the time the loan is outstanding. The borrower expects to repay in six to seven months when a property sale settles. Over that realistic term, Offer B costs less, despite looking more expensive at first glance.
Questions to ask before accepting
- What exactly is deducted from the advance at settlement?
- What is the total cost if I repay in the expected time, and if I repay two months later?
- What is required to extend, and what will it cost?
- When would default provisions apply?
- Which conditions could delay funding, and how can I satisfy them quickly?
Reading the security clause closely
The security section deserves extra attention. Check that each property is described correctly, with the right title references and registered owners. If a property owned by a spouse, trust or related company is included, make sure that owner understands and agrees, because they will need to sign and may need independent legal advice. Check whether the security is limited to the properties you discussed or includes broader charges, such as a general security interest over the company’s assets. Also check whether the security will secure only this loan or any other amounts you owe the lender in future. If anything is broader than you expected, ask why and whether it can be narrowed.
Insurance and other ongoing obligations
Most secured loans require the security property to be insured for its replacement value with the lender noted as an interested party. Other ongoing obligations might include keeping rates and taxes paid, not further mortgaging the property without consent, maintaining the property and notifying the lender of material changes. These are usually standard, but you should know what they are and be confident you can meet them throughout the term.
Timing promises
Indicative terms sometimes include an expected settlement date or say how long the offer remains open. If the offer expires before you can satisfy the conditions, ask for an extension in writing. If settlement timing is critical, confirm what the lender needs from you and by when, so there is a shared timetable rather than an assumption on each side. A short email confirming the agreed steps and dates can prevent last-minute surprises.
Accept with confidence
Indicative terms are your chance to understand the whole deal before committing. Read them carefully, compare like with like and ask every question. If you would like an offer prepared for your situation, tell us about the property, the amount and the exit. There is no credit check when you first enquire, your enquiry is handled by one team, and we will set out every cost in writing. Request indicative terms.
Frequently asked questions
Are indicative terms binding?
Usually not fully. They outline the proposed loan subject to conditions. The binding terms are in the loan agreement you sign later.
What fees should appear?
Typically an establishment fee, legal costs for documents and security, and any discharge costs. Every cost should be listed in writing.
What if the final documents differ from the indicative terms?
Ask why. Differences should be explained and agreed before you sign.
Should my solicitor review the terms?
It is wise, and independent legal advice is often required for guarantors before signing loan documents.
Prefer to start now? Enquire here
About 60 seconds. No credit check when you first enquire, and a secured lending specialist calls you back.