How to compare offers for finance in the non-bank space

If you’re a client or a referral partner who has only ever dealt with mainstream funders, you might not be aware of the different types of terms offered in the non-bank space and their advantages over more traditional funding solutions.

When comparing Indicative Term Sheets (ITS) in the non-bank space, there are several key factors to consider. An ITS will outline the proposed terms and conditions for a loan transaction, however, as the name suggests it is only indicative and remains so until the lender has completed their due diligence.

Here are some steps you can follow when comparing and evaluating different non-bank lenders’ Indicative Term Sheets (ITS):

1. Review the structure and purpose

To begin with, it’s vital to understand the structure and purpose of the term sheet and ensure it aligns with your original goals and objectives for the project. This step ensures that the term sheet is designed to meet your specific needs. 

2. Evaluate key terms

Identify and compare the key terms included in the term sheet. Ensure you pay close attention to important terms such as: 

• Loan amount: Compare the proposed loan amount and ensure it covers all necessary costs, including upfront fees and/or capitalised interest etc.
• Interest rate: Compare the interest rate and determine if it is fixed or variable. Verify its competitiveness and exercise caution, if it appears too good to be true, it probably is!
• Maturity or duration: Examine the proposed loan duration and check if there are any requirements for minimum interest periods (something the lender might seek in order to meet their investor’s requirements) or penalties for early repayment or exit fees.
• Assess the repayment terms (the exit strategy) associated with the loan. Determine if interest is paid monthly, capitalised until maturity or if the loan requires selling the security property or other assets for repayment.
• Fees and costs: Compare any associated fees or costs, such as establishment fees, line fees, legal fees and other administrative expenses. These can significantly impact the overall cost of the loan.

3. Risk assessment

Evaluate the risk factors associated with each term sheet. You need to consider the lender’s track record, financial stability, collateral requirements, guarantees and other security measures provided. A thorough risk assessment ensures the safety of your investment. 

4. Flexibility and customisation

Determine whether the terms can be negotiated or tailored to better suit your needs. Flexibility in terms allows for adjustments that align with your specific requirements and preferences. 

5. Additional terms and conditions

Pay careful attention to any additional terms and conditions specified in the term sheet. These may include clauses related to early repayment or exit fees, covenants, reporting requirements, or any other provisions that may impact the transaction. Understanding these details ensures transparency and helps you make informed decisions. 

6. Seek professional advice

If you’re not well-versed in financial matters or legal documentation, it’s highly recommended to seek professional advice from a lawyer or financial advisor. Their expertise can help you understand the implications of the term sheets, provide critical information, and offer invaluable insights to avoid potential issues. 

7. Decision-making

Thoroughly review and compare the term sheets, considering the pros and cons of each option based on your specific requirements, risk tolerance, and financial objectives. Select the term sheet that best aligns with your needs and objectives.

Remember that indicative term sheets are preliminary proposals subject to negotiation and formalisation into binding agreements. Engage in detailed discussions and rigorous due diligence before agreeing to move forward with a transaction.

When evaluating non-bank lenders’ Indicative Term Sheets, it is essential to consider various factors to make informed decisions. Reviewing the structure, evaluating key terms, assessing risk, seeking professional advice, and carefully weighing options are crucial steps in the process. 

Partnering with Zolve, a highly experienced non-bank intermediary, offers the advantage of working with a trusted partner who understands your industry’s unique challenges and provides tailored financial solutions. 

Why choose Zolve? 

At Zolve, our knowledgeable team will work with you to ensure that you’re comparing apples with apples when assessing various non-bank funders’ term sheets. Zolve is highly experienced in the non-bank space and offers a comprehensive range of financial solutions tailored to meet clients’ needs.  

As a finance partner, Zolve understands the unique challenges and requirements of a variety of industries, providing specialised expertise and personalised support throughout the financing process.

By leveraging our experience and networks, Zolve can help you to navigate the complexities of securing funding, attract a range of potential non-bank funders and ensure a smooth and successful transaction.

For more information on our experience and how we work, contact Zolve today!