In short
To read a business loan offer, find four numbers first: the cash you'll actually receive, the total you'll repay, the repayment amount and frequency, and every fee. Then read the clauses that decide what happens when things go wrong: security, guarantees, default triggers, review dates and early payout. Business loans don't have to show a comparison rate, so the dollars and the default clauses tell you more than any headline price.
At a glance
- Start with net advance, total repayable, repayment rhythm and fees, all in dollars.
- Security, guarantee and default clauses matter as much as price.
- Business-purpose loans fall outside the National Credit Code, so there's no comparison rate and fewer protections.
- Unfair contract term laws can still apply to standard form small business contracts.
- If a clause can't be explained to you in plain English, don't sign until it is.
A business loan offer is the lender’s written proposal setting out how much it will lend, on what terms, against what security and under what conditions. Some arrive as a two-page letter, others as a forty-page facility agreement. Either way, the parts that cost owners money are rarely on page one.
Our verdict, up front: read an offer in two passes. First the money, in dollars. Then the clauses that decide what happens if your business has a bad quarter. An offer that wins the first pass but fails the second is not the cheaper offer.
Why does reading the offer matter more for business loans?
Because the law protects you less. ASIC states plainly that commercial loans, including loans to small businesses, get the lowest level of legal protection. Credit used mainly for business purposes falls outside the National Credit Code, which is why business loans don’t have to show a comparison rate. ASIC also notes that a lender writing only commercial loans doesn’t need a credit licence and isn’t legally required to belong to AFCA, the free complaints body.
Some safety nets remain. Unfair contract term laws can apply to standard form contracts with small businesses, and civil penalties now apply when a financial services provider relies on an unfair term. Banks that subscribe to the 2025 Banking Code commit to extra standards for small business customers. But the starting point is simple: what you sign is what you get.
Pass one: what do the numbers actually say?
Find these four figures before you read anything else.
- Net advance. The loan amount minus any fees deducted at settlement. This is the cash that actually reaches you or your supplier.
- Total repayable. Every scheduled repayment added together, plus any balloon or residual at the end.
- Repayment amount and frequency. Daily, weekly, fortnightly or monthly, and which account it’s debited from.
- Every fee. Establishment, documentation, valuation, legal, monthly account or line fees, early payout and discharge fees, dishonour and default fees.
Then do the one calculation that matters: total repayable + every fee (including any taken from the advance) − amount borrowed = total cost of finance. Our total cost comparer does it for you and shows cost per month.
Our verdict: if an offer won’t state the total repayable in writing, treat that as a reason to walk away rather than a detail to chase.
Pass two: which clauses decide what happens when things go wrong?
This is where offers that look alike start to differ. We read every offer against the same twelve sections:
| Section of the offer | What to check | Red flag |
|---|---|---|
| Parties | Exact borrower entity, every guarantor | A guarantor you didn’t agree to |
| Facility type | Term loan, line of credit, advance, lease | Product described differently from what you asked for |
| Amount and net advance | Deductions before funding | Large fees taken from the advance |
| Term and expiry | End date, review dates | Short expiry on a long-term need |
| Pricing basis | Fixed, variable, factor or flat fee | Pricing that can change without notice |
| Repayments | Amount, frequency, start date | Daily debits on a business paid monthly |
| Fees | Every fee, when charged | Fees described as “as determined by the lender” |
| Security | What’s mortgaged or charged | A general security over all business assets for a small loan |
| Guarantees | Who, how much, limited or unlimited | Unlimited guarantees over a modest facility |
| Conditions | What must happen before funding | Conditions you can’t control or meet |
| Default events | Every trigger listed | Vague triggers such as “any material adverse change” |
| Early payout | How the payout figure is worked out | Most of the remaining cost charged on early exit |
If any row worries you, ask the lender to explain it in writing. Not sure how an offer you’re holding stacks up? Have a specialist read it with you, and there’s no credit check involved in asking.
Which clauses cost owners the most?
From the offers we see, four clauses do the most damage when they’re missed.
Default triggers that aren’t about payments. Many agreements list events such as late financial statements, a change of ownership, a new lender taking security, or breach of a financial ratio. You can be in default while every repayment is on time. Under the 2025 Banking Code, subscribing banks commit not to include default events based on unspecified material adverse changes; other lenders make no such commitment.
Early payout terms. Some structures charge most of the remaining cost even if you repay early. If you might refinance or sell within the term, this clause can matter more than the price. See our verdict on cash advances versus term loans.
Guarantees. Read whether the guarantee is limited to a set amount or a specific asset, or covers everything you owe the lender now and in future. Our page on business loans without a personal guarantee explains what’s realistic.
Variation rights. A clause letting the lender change fees, pricing or terms at its discretion is worth querying. ASIC lists a broad discretion to unilaterally vary any term, without adequate exit rights, as an example of a potentially unfair term.
What if the offer is only a short letter?
Then it’s an indicative offer, not the contract. Many lenders send a one- or two-page letter of offer or term sheet first, with the full facility agreement following after you accept. That’s normal, but it changes how you read it.
- Check what’s “subject to”. Valuation, credit approval, satisfactory accounts or legal review can all change the final terms.
- Ask for the standard terms now. Most lenders have general terms and conditions that sit behind every letter. Request them before you accept the letter.
- Compare the final documents with the letter. Amount, fees, security and guarantees should match. If anything has moved, query it before signing.
Our verdict: accept an indicative letter only when you’ve seen the standard terms it refers to.
How should you read the pricing section without a comparison rate?
Translate it into dollars. Business loan pricing comes in several forms: an interest rate applied to a reducing balance, a flat fee over the term, or a factor applied to the advance. They aren’t directly comparable as stated. The fair test is always the same: total cost of finance in dollars, over the term you’ll realistically keep the loan.
If the pricing is variable, ask how and when it can change and how you’ll be notified. Our verdict on fixed versus variable covers which suits which business. If the offer uses a factor, read our guide to factor rates explained before you sign.
An illustrative example
Illustrative only — invented figures, not any lender’s pricing.
A florist with two shops receives an offer of $60,000 over 12 months. Page one shows a weekly repayment of $1,370. Pass one: the offer deducts a $1,800 establishment fee from the advance, so the net advance is $58,200; 52 repayments total $71,240; there’s a $25 weekly account fee ($1,300 a year). Add the $71,240, the $1,300 and the $1,800 deducted fee, subtract the $60,000 borrowed, and the total cost of finance is $14,340.
Pass two finds three issues: an unlimited personal guarantee from both owners, a default trigger if annual accounts aren’t supplied within 60 days of year end, and an early payout clause charging 90 per cent of remaining scheduled cost. The owner asks for a guarantee limited to the loan amount and a 120-day accounts window, and gets one of the two. Verdict: the price was fair for the risk; the clauses were negotiable in part, and knowing them changed the decision about whether to refinance early.
What should you ask the lender before signing?
- What is the total amount repayable, in writing?
- Which fees are deducted from the advance?
- What exactly triggers default, other than missed payments?
- How is the early payout figure calculated?
- Is the guarantee limited, and to what?
- Can pricing or fees change during the term, and with what notice?
- Do you subscribe to the Banking Code, and are you an AFCA member?
A good lender answers all seven without fuss. One that won’t is telling you something. Our lender comparisons explain how each lender type behaves, and our lender red flags page lists the other warning signs.
Want a better offer to read?
Reading an offer well is half the job; starting with the right one is the other half. Tell us what you need and what you’ve been offered and a specialist will look for a structure that suits your business. You won’t face a credit check to start, we don’t auction your details to a line-up of lenders, and a real person handles the file. Give us the actual figures from any offer you hold so we can compare like with like the first time.
Questions owners ask
What should I look for first in a business loan offer?
The net advance (what you receive after deducted fees), the total amount repayable, the repayment amount and how often it's debited, and a full list of fees. Those four items let you work out the total cost of finance in dollars, which is the fairest single measure of price.
Why doesn't my business loan offer show a comparison rate?
Credit provided wholly or mainly for business purposes sits outside the National Credit Code, so lenders aren't required to show a comparison rate. That's why we judge business loan offers on total dollars repaid, not on a headline figure, and why you should too.
What is a default clause in a business loan?
It lists the events that let the lender demand early repayment or charge extra: missed payments, but also things like breaching a financial ratio, changing ownership or failing to provide accounts. Read every trigger, because some can apply even when repayments are up to date.
Can a lender change my loan terms after I sign?
Some contracts allow the lender to vary fees or terms. ASIC lists a broad discretion to unilaterally vary any term without adequate exit rights as an example of a potentially unfair term in standard form small business contracts. Check the variation clause and ask what notice you'd get.
Should I get a lawyer to review a business loan offer?
For larger loans, property security or personal guarantees, yes. ASIC encourages anyone with concerns about commercial lending to seek independent legal advice early. Even for smaller loans, ask the lender to explain any clause you don't understand in writing, and keep that explanation with the contract.
Do banks have to give me a summary of the loan terms?
Banks that subscribe to the Banking Code of Practice commit to giving small business customers a plain-English document setting out the key general terms before they accept a loan offer. Non-bank lenders may provide one, but aren't bound by the Code.
Reviewed by the Best Biz Loan editorial team · updated 5 October 2026
We judge loan structures and lender types against the same five tests, never named lenders' products, and we never publish rates. How we judge
