How to review a business loan offer before you sign

Most business owners spend weeks finding finance and minutes reading the offer. That is backwards. Once a lender says yes, the paperwork in front of you decides what the money really costs, what happens when a month goes badly, and what you personally stand to lose. This guide is the starting point of our offer review series: a practical order of work you can apply to any offer, from a small unsecured loan to a property-secured facility.

Step 1: Turn the offer into dollars

Offers are presented in different ways. One shows an annual rate and a monthly fee; another quotes a single amount to repay; a third deducts a hefty establishment fee before the money lands. Ignore the presentation and write down four figures:

• the loan amount;
• any fees deducted from the money you receive;
• the total of all repayments (instalment multiplied by the number of instalments);
• any other fees you will pay along the way, such as monthly account fees.

The total cost of finance is the repayments plus fees minus the loan amount. Divide it by the cash you actually receive and you have the cost per dollar, the fairest single comparison between offers. Our true cost calculator does this in seconds, and the offer comparison calculator lines up three offers side by side. For a deeper explanation, read the total cost of a business loan.

Step 2: Stress-test the repayments

A loan you can afford on paper can still break your cash flow if the repayments land at the wrong time. Check:

• Frequency. Daily and weekly debits are common with short-term lending. Map them against your real banking pattern. If customers pay monthly, weekly debits can leave the account bare in the third week.
• Start date. Some loans start debiting within days. Make sure the money has done its job before repayments begin.
• Your worst month. Take your slowest trading month from the past year and check the repayments still clear with a buffer. The repayment coverage calculator shows how much headroom you have.

Step 3: Read the security clause

Security is what the lender can claim if the loan is not repaid. It ranges from nothing specific, through a general security agreement over all business assets, to a caveat or registered mortgage over property. Each has consequences:

Security type	What it means for you
None beyond a guarantee	No asset is named, but the guarantor is exposed
General security agreement (GSA)	A charge over present and future business assets, registered on the PPSR
Specific asset	The financed vehicle or equipment can be repossessed
Caveat	An interest noted on a property title, restricting dealings with it
Registered mortgage	A formal charge on the title, with the right to sell on default

Ask what will be registered, where, and when it will be released. Our guide to security and GSAs covers this in depth.

Step 4: Understand every guarantee

Personal guarantees are standard in business lending, and they are the clause owners most often regret not reading. A guarantee usually makes you personally liable for the whole debt, plus costs, if the business cannot pay. Check whether it is limited to a set amount, whether it covers only this loan or all future debts, and whether a spouse or non-director is being asked to sign. See personal guarantees explained.

Step 5: Check early payout and exit

Plans change. A contract may finish early because a property sells, a refinance comes through or trade picks up. Some loans give a real saving if you repay early; others charge most of the remaining cost regardless. Ask the lender to explain, in writing, how a payout figure would be calculated halfway through the term. Our early payout savings calculator helps when the time comes.

Step 6: Find the default triggers

Default clauses describe what lets the lender demand full repayment, add default interest or enforce security. Late payment is the obvious one, but contracts can also list events such as a change in directors, a new tax debt, a judgment against the business or a drop in a property’s value. Note the dishonour fee and any default interest so you know the cost of a missed payment. Our guide to reading a business loan contract explains the common clauses.

Step 7: Compare with alternatives, then decide

With the numbers and terms understood, you are in a position to compare. A slightly dearer offer with no general security agreement and a fair payout clause can be the better deal. A cheap offer that requires a mortgage over the family home might not be. Check the red flags list before you sign anything.

Step 8: Check the conditions before money moves

Most offers are conditional. Before funds are released you may need to provide extra documents, insurance certificates, a valuation, a signed guarantee or evidence that another debt has been paid out. Some conditions are routine; others can delay settlement by weeks or change the deal. Read the conditions list as carefully as the price, ask which are outstanding and who is responsible for each, and confirm the expected settlement date in writing.

Keep a copy of every version of the offer and the final signed contract, along with notes of any phone conversations. If something later turns out differently from what you were told, a clear record makes it far easier to raise with the lender. It also helps your accountant when tax time comes and the loan costs need to be split between deductible interest and principal.

Getting a second look at your offer

If you are holding an offer and are not sure it is competitive for a business like yours, you can make one enquiry and ask a lending partner to look at your situation. There is no credit check when you first enquire, your details are not sent to a list of lenders, and a real person reviews what you send. Describe the offer you already have and answer the questions accurately; it helps the conversation get straight to whether there is a better fit. You can also start an enquiry before any offer arrives if you would rather know your options first.