Private Lending: The Good, the Bad, the Ugly

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Have you recently been issued a Term Sheet during a private lending enquiry?

Don’t get too excited just yet. 

It is critical to note that a Term Sheet is not a commitment to lend. 

It is simply an invitation to a first date, an expression of interest, provided that you or your client the Borrower is able to meet the terms and conditions outlined in the document.

The good: Term Sheets are non-binding and we have seen Term Sheets issued where private lenders in Australia may change the terms of the offer several times, even after the borrower has signed.  

The ugly: This happens when the term sheet allows private lenders to keep the high commitment fee, even if the transaction does not proceed. This happens even though the lender may have unfairly moved the goalposts and changed the terms of their offer.

At Vado Private, if we issue a term sheet, be assured:

  • We have carried out extensive due diligence (at our expense)
  • We will not change the terms of our offer
  • The borrower’s commitment fee is refundable in full should we not proceed to unconditional approval
  • Upon receiving a signed Term Sheet, our capital is committed exclusively to the borrower

The bad: So when institutional banks are cautious and risk appetite is volatile, this inevitably creates the perfect toxic storm with sharks circling, particularly if borrowers are misguided into securing poisonous finance terms. 

Profit is not a dirty word, but in my world, the way you earn profit needs to be ethical. 

If there is a Term Sheet or deal metric you would like for our team to review, please contact us for a conditional assessment.