How to compare private-loan term sheets

Why the headline rate is not enough

A private-loan term sheet is a summary of a proposed transaction, not a complete measure of its cost or certainty. Two offers can display similar interest rates while producing different net proceeds, different repayment amounts and very different consequences if the exit is delayed.

A useful comparison translates each proposal into the same set of commercial questions. How much usable capital reaches the borrower? What must be paid and when? Which assets and parties support the debt? What remains conditional? What happens if the facility runs beyond the intended term?

Start with net funds available

The gross facility amount can overstate the capital available for the actual business or property purpose. Existing secured debt may need to be repaid. Interest may be retained. Establishment, valuation and legal costs may be deducted at settlement.

Build a sources-and-uses calculation for every option. Begin with the gross facility, deduct every known payout and cost, then confirm whether the remaining amount meets the requirement. If the transaction needs a fixed amount at settlement, a shortfall in net proceeds is not solved by an attractive headline limit.

• Gross approved or proposed facility
• Existing lender payout
• Retained or prepaid interest
• Establishment and advisory fees
• Valuation, legal and search costs
• Net funds available for the stated purpose

Put every fee on one timeline

List costs according to when they become payable. Some are paid before assessment, some at settlement and some only if the loan is extended, repaid early or falls into default. Timing matters because it changes both cash flow and the amount of capital required.

Check how interest is calculated and whether there is a minimum-interest period. Ask whether undrawn funds attract interest, whether interest is capitalised and whether repayment before the expected maturity reduces the total cost.

Model the delayed-exit case

Short-term finance is particularly sensitive to timing. A sale can settle later than expected. Construction can take longer. A refinance can require another valuation, updated financial information or additional credit approval.

Compare the expected case with a realistic delayed case. Include extension fees, the interest applying during the additional period and any change to the rate. If there is no contractual right to extend, treat that as a material risk rather than assuming the lender will agree when the time comes.

Read the security and conditions together

Price cannot be separated from control. Review the mortgage position, guarantees, general security agreements, covenants and reporting obligations. Understand what constitutes default and whether a breach under another facility can affect this one.

Then examine the conditions that sit between indicative terms and settlement. Valuation, due diligence, legal review, first-mortgage consent and evidence of the exit may all remain outstanding. A cheaper term sheet with unresolved conditions may be less useful than a clearer proposal with a realistic completion path.

Use one comparison table

Place every offer into the same table: gross facility, net proceeds, total expected repayment, security, term, extension rights, default pricing, conditions, funding source and proposed exit. Record assumptions beside the figures so that a change in valuation or timing can be tested consistently.

The objective is not simply to identify the lowest number. It is to choose the facility that meets the commercial requirement with an acceptable cost, an executable settlement path and a repayment plan the borrower can support.