Business Overdraft Letter of Offer: Clauses to Check Before Signing
What a business overdraft letter of offer and facility agreement usually say on review, default, security and guarantees, and what to ask before signing.
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Overdraft Letter of Offer · Facility Agreement · Clauses
It is the night before the bank wants your signature, and the letter of offer runs to twelve pages. Most of it is standard wording. A handful of clauses decide what the bank can do if trade turns, and those are the ones worth reading twice.
Quick Answer
An overdraft letter of offer sets your limit, review date, pricing, security, guarantees and conditions, and sits on top of the bank's general terms, so read both before signing. The clauses that matter most are review, default, the security taken and how far each guarantee reaches. If the terms do not fit your business, a business line of credit from a non-bank lender is worth comparing before you sign.
Also called: facility letter, overdraft facility agreement, loan offer. The letter of offer sets out your facility's specific terms; it usually sits on top of the bank's general terms, and together they form the agreement.
What is in a business overdraft letter of offer?
A business overdraft letter of offer sets out the specific terms of your facility: the limit, the review or expiry date, interest and fees, the security and guarantees the bank wants, and what has to happen before you can draw. The letter of offer sits on top of the general terms, which are the bank's standard conditions for every business facility of that type. Together they form the agreement, and the letter usually says which document wins where the two differ.
Taken clause by clause, a typical offer covers:
- Limit and purpose. The approved limit and, often, a line saying the facility is for business working capital only.
- Review or expiry date. When the bank will look at the facility again, and whether it rolls over or ends.
- Interest and fees. The rate basis, any margin, an establishment fee and a line fee on the limit. How each fee is charged is covered in the overdraft rates and fees guide.
- Security and guarantees. What the bank takes over business assets or property, and who personally guarantees the debt.
- Conditions precedent. What must be in place before the limit goes live: signed guarantees, registered security, insurance certificates and sometimes a valuation.
- Undertakings and events of default. What you promise to do while the facility runs, and what lets the bank act if you do not.
If the general terms are not attached, ask for them before you sign. Ask the bank for a plain English summary of the key terms as well. If you are still weighing whether an overdraft is the right facility at all, the business overdraft guide covers how one works and when it fits.
What do the review and on-demand clauses let the bank do?
The review and on-demand clauses let the bank reassess the facility at each review date and, in the contract's own wording, ask for the balance back without a fixed repayment schedule. The review clause usually allows the bank to change the limit, pricing or conditions at review, or to decline to renew. The on-demand clause is the stronger of the two: on paper, the bank can call for repayment whenever it chooses.
How that power is limited, and how money flows back into an overdraft from month to month, sits in the business overdraft guide. For subscribing banks, the Banking Code of Practice sets notice the bank must give before it demands repayment or decides not to extend, with the periods set by the Code itself. When a bank does move, the recalled facility guide walks through the options, and the annual review plan covers how to prepare so a review is routine rather than a surprise.
Worth reading closely: whether the review date is an expiry date in disguise, and whether the bank can change conditions between reviews or only at them.
What are financial undertakings and covenants in an overdraft agreement?
Financial undertakings and covenants are promises you make for as long as the facility runs: to report information, to keep certain financial measures within agreed levels, and not to take certain steps without the bank's consent. Smaller overdrafts often carry only reporting undertakings. Larger facilities typically add ratios.
- Reporting. Annual financial statements within a set period after year end (the period varies by lender), plus BAS or management accounts on request.
- Financial covenants. Measures such as interest cover or a debt ratio, tested at set dates, typically in larger facilities.
- Negative pledge. No other security over the business assets without the bank's consent.
- No further borrowing. Limits on new debt from other lenders, sometimes with a small allowance for equipment finance.
- Change of control. Consent needed before a change in ownership, directors or business structure.
In deals I've seen, the covenant that trips owners up is rarely a ratio. It is the reporting deadline, missed because the year-end accounts were lodged late and nobody told the bank. Check each deadline against when your accountant usually finishes, and ask for a longer period before you sign if it will not fit. Covenant ratios and reporting dates are worth running past your accountant at the same time.
What counts as an event of default?
An event of default is a listed event that lets the bank take enforcement action under the facility terms, such as cancelling the limit, demanding repayment or enforcing its security. The list is usually longer than owners expect, and missing a payment is only one item on it.
- Non-payment. Interest, fees or a required reduction not paid when due.
- Breach of an undertaking or covenant. Including a missed reporting deadline.
- Insolvency events. Appointment of an administrator, a winding up application or a creditor judgment left unpaid.
- Misrepresentation. Information given in the application turning out to be wrong.
- Going over the limit. A common technical default, covered in the over the overdraft limit insight.
What is a cross default clause?
A cross default clause makes a default on any other debt, with the same bank or sometimes with any lender, an event of default under the overdraft too. One missed equipment loan payment can put the overdraft in default even if the overdraft itself is in order. Check whether the clause reaches debts with other lenders and whether it has a minimum amount.
For subscribing banks, the Banking Code limits how default clauses are used: the bank gives notice before acting, gives a chance to fix a default that can be fixed, and standard small business contracts cannot include an unspecified material adverse change clause. An offer from a lender that does not subscribe will not carry those limits, which is one more reason to read this section of the letter slowly.
What security and guarantee terms should you check?
Check exactly what is secured, whose assets and property stand behind the facility, and how far each guarantee reaches. These terms outlast the overdraft: the security stays registered until the bank releases it.
- Business assets. A general security agreement over the company's assets, registered on the PPSR.
- Property. A mortgage over a home or commercial property, usually as a first mortgage. How property-backed overdrafts are sized is covered in the secured business overdraft insight.
- Director's guarantee. A personal promise from each director to repay what the company cannot. The directors guarantee entry and the director's guarantee guide cover what it commits you to and how release works.
- Third-party guarantees. A guarantor outside the business, such as a spouse or parent, deserves independent advice before signing.
What does all-moneys wording mean?
All-moneys wording means the security and guarantees cover every amount you owe the bank, now or later, under any facility, not just the overdraft named in the letter. Property mortgaged for an overdraft can then also stand behind a later equipment loan, a credit card or a bank guarantee, and a guarantor can find they have backed debts they never saw. All-moneys wording is the clause owners are most often surprised by, usually when they try to refinance one facility and find the bank will not release the property until everything is repaid.
If you would rather not put property up at all, the unsecured business overdraft guide covers what an unsecured limit trades away.
Standard wording
- A general security agreement over company assets
- A guarantee from each director
- Insurance over secured assets, with the bank noted
- Reporting annual financial statements
- A review date with renewal at the bank's discretion
Worth asking about
- All-moneys wording over a family home
- An unlimited guarantee from a non-director
- A cross default reaching other lenders
- Changes allowed between reviews on short notice
- Reporting deadlines your accountant cannot meet
What protections apply to overdraft terms?
Two sets of protections usually apply to a small business overdraft: the unfair contract term laws, and, where your bank subscribes, the Banking Code of Practice. Neither one reads the letter for you, but both shape what a standard offer can contain.
Under ASIC's unfair contract term protections for small businesses (INFO 211), at the time of writing a small business is one with fewer than 100 employees or turnover under $10 million, and the protection covers financial product contracts where the upfront price is up to $5 million. A contract is presumed to be a standard form contract unless proven otherwise. ASIC gives a small business loan term letting the lender vary terms on short notice in unspecified ways as an example of a potentially unfair term, and civil penalties for unfair terms have applied since late 2023.
The Banking Code adds its own commitments for subscribing banks: notice before enforcement and limits on default clauses, as described above. The business loan protections guide sets out how these fit together. Whether a particular term in your offer is unfair is a legal question for a solicitor, not something to settle from a fact sheet.
Sources: ASIC, Unfair contract term protections for small businesses (INFO 211); Australian Banking Association, Banking Code of Practice. Both read 16 October 2026.
Which overdraft terms can you negotiate?
Most overdraft terms can be negotiated before you sign, especially the limit, fees, the scope of security, guarantee limits, review conditions and reporting frequency. Interest margins move less, and general terms rarely move at all. The letter of offer is the place to ask, because once it is signed the bank has little reason to reopen it until review.
| Clause | What it usually says | What it means for you | Worth asking about |
|---|---|---|---|
| Limit | The approved limit and its purpose | Your headroom, and what you may use it for | A limit sized to your seasonal peak, not an average month |
| Review date | A set date for review, renewal at the bank's discretion | Pricing, limit and conditions can change then | Whether changes are allowed only at review |
| Interest and fees | Rate basis, margin, establishment and line fees | The cost of holding the limit, used or not | A lower line fee or a smaller limit if you rarely draw |
| Security | A general security agreement, often a mortgage | Which assets the bank can enforce against | Removing all-moneys wording or a specific property |
| Guarantees | Director guarantees, sometimes third parties | Personal liability if the business cannot pay | A guarantee limit and a release path |
| Covenants and reporting | Financial statements by a deadline, sometimes ratios | A missed deadline can be a default | Deadlines that match your accountant's timetable |
| Events of default | Non-payment, breach, insolvency, cross default | What lets the bank act early | Cross default limited to this bank, with a minimum amount |
| Variation | The bank may change terms with notice | Terms can move during the facility | Notice periods and which terms can change |
Not every row needs a fight. Most of a letter of offer is standard wording worth asking about only when it does not fit how your business trades. A broker can compare the commercial terms against what other lenders would offer for the same facility, including a revolving business line of credit from a non-bank lender, and the Business Owners Hub collects the other facilities owners weigh against an overdraft.
A business overdraft letter of offer is mostly standard wording, but a few clauses decide what happens when trade turns: review and on-demand rights, covenants and reporting deadlines, events of default including cross default, and all-moneys security and guarantees. Read the letter and the general terms together, check each deadline and each guarantee, and use the unfair contract term protections and, for subscribing banks, the Banking Code as a floor rather than a substitute for advice.
Key takeaway: before you sign, find the all-moneys wording, the cross default clause and the reporting deadlines, and ask about each one while the offer is still open.Frequently Asked Questions
Before signing an overdraft letter of offer, check the limit, review date, pricing, security, guarantees, conditions precedent, covenants and events of default, and read the general terms the letter sits on. Give the most attention to all-moneys wording, cross default and how far each guarantee reaches. The director's guarantee guide covers what a personal guarantee commits you to.
A bank that subscribes to the Banking Code of Practice generally cannot change your overdraft terms without notice, because the Code sets notice requirements for changes. Interest rate changes follow their own notice rules, covered in the overdraft rates and fees guide. Separately, the unfair contract term laws can make a broad clause letting a lender vary terms in unspecified ways unenforceable against a small business.
If you breach an overdraft covenant, the breach is usually an event of default that gives the bank the right to act under the facility terms. Often the bank first asks for an explanation or a plan, and may reprice or reduce the limit rather than call the debt, and subscribing banks give notice and a chance to fix a default that can be fixed. If the bank has already moved, the recalled facility guide covers the next steps.
A letter of offer is not quite the same as a facility agreement: the letter sets out your facility's specific terms and sits on top of the bank's general terms, and together they form the agreement. Some lenders call the combined document a facility letter or facility agreement. The general security agreement and guarantees are often separate documents again, so ask for every document you are being asked to sign.
You do not always need a solicitor to review an overdraft offer, but one is worth paying for when the offer takes property security, a guarantee from someone outside the business, all-moneys wording or financial covenants. A broker can compare the commercial terms with other lenders, while only a solicitor can advise what a clause means for you legally. The protections that apply regardless are summarised in the business loan protections guide.
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