How to read a business loan offer

Read it as a contract, not a sales document

An offer letter or facility agreement is the legally binding terms on which a lender will advance money. It is tempting to skim to the rate and sign, but every number and clause changes what you actually owe and what you are agreeing to. The good news is that most offers follow a predictable shape, so once you know what to look for you can read one confidently in fifteen minutes.

Before you start, have your own figure to hand: how much you need, for how long, and the maximum monthly repayment your business can comfortably afford. Reading an offer against your own affordability number — see how to calculate affordability — stops a tidy-looking offer from talking you into more than you should take.

Step by step: what to check, in order

Work through the document methodically. The order matters — settle the money questions before the legal ones.

1. The total amount repayable. This is the single most important figure: the principal plus all interest and fees. If it is not stated plainly, ask for it in writing.
2. The rate and how interest accrues. Fixed or variable? Charged on the full balance or the reducing balance? On the full term or only while drawn?
3. Every fee. Arrangement, origination, drawdown, late-payment and exit fees all add up.
4. The repayment schedule. Amount, frequency and the first payment date.
5. Security and guarantees. Is a personal guarantee, debenture or charge required?
6. Early repayment. Can you settle early, and is there a charge for doing so?
7. Default terms. What counts as default and what the lender can do about it.

Decode the fees and the rate

Fees are where the true cost hides. An offer with a low rate and a high arrangement fee can be dearer than one with the opposite. Add every fee to the interest to get your real number. Watch in particular for fees expressed as a percentage of the facility (which scale with the amount), and for any charge that applies whether or not you draw the funds.

On the rate itself, check three things: whether it is fixed for the term, whether interest is charged on the original balance or the reducing balance, and — on a revolving line — whether you pay only for what you draw. A revolving facility that charges only on the drawn amount behaves very differently from a term loan charging on the full sum from day one. Our fees explained guide lists the common ones line by line.

The clauses people miss

Beyond price, a handful of clauses deserve a second read because they bite later:

• Personal guarantees. A guarantee makes you personally liable for company debt. Know exactly what you are signing before you agree to one.
• Security and charges. A debenture or fixed/floating charge gives the lender a claim over company assets.
• Covenants. Ongoing conditions — minimum turnover, reporting deadlines — that you must keep meeting.
• Default triggers. Some agreements treat a single missed payment, or a covenant breach, as grounds to demand the whole balance.
• Early-repayment charges. A penalty for clearing the loan ahead of schedule can wipe out the saving.

If any clause is unclear, ask the lender to explain it in writing. A reputable lender will. If they will not, that itself is informative — see how to spot predatory lending.

What a Credicorp offer looks like

Because Credicorp lends to the company and not the director, a Credicorp facility offer does not ask for a personal guarantee — the security column on your checklist stays clear of your personal assets. The offer states the total repayable plainly, sets out fees up front, and is structured for short-term working capital rather than long, secured lending.

Read it the same way you would any offer: check the total repayable, the fees and the repayment dates against your own affordability number. You can see our business loans, review the Credicorp Flex facility, or register to apply. This page is educational and not financial or legal advice; for a specific agreement, take your own professional advice.