Is the Private Lender Quoting You Actually the Funder?
How to tell whether the private lender on your term sheet is the party actually funding the loan, and what to check before you pay any fee.
Property Lending Hub
Private Lender · Term Sheet · Funding Commitment
A private lender term sheet tells you the price of the money. It does not always tell you who is holding it. This is how to read the document in front of you, work out whether the entity quoting you controls the funds, and decide what to confirm before any fee is paid.
Quick Answer
The name at the top of a private lending offer is not always the party whose money settles the loan. Ask which entity will be named as mortgagee, whether the funds are under that entity's control today, and what happens to your fee if the answer changes. Those three answers separate a funding commitment from an introduction. Start with the private lending overview if the structure is new to you.
The document in front of you is a price list, not a proof of funds. Reading it properly means separating what the entity on the letterhead has committed to from what it has merely quoted on someone else's behalf.
Also called: private mortgage lender, non-bank funder.
How do you know if a private lender is the actual funder?
You know a private lender is the actual funder when the entity on the term sheet can name whose money settles the loan and can tell you where those funds sit today. Everything else on the page, the rate, the term, the fees, is negotiable detail sitting on top of that one fact.
The call that produces this post always has the same shape. A borrower has a signed offer, a fee payable this week, and a settlement promised inside a fortnight. The document looks like a decision. Nobody has yet asked the question the document does not answer, which is who is actually holding the money.
The entity on the term sheet is usually one of three things. It is the funder, lending its own balance sheet or a fund it manages. It is a mandated arranger, holding the right to place your deal with a funder it has not yet named. Or it is an introducer writing on its own letterhead about capital it does not control. All three are legitimate roles in this market and all three produce paper that reads the same at a glance. Only one of them can settle.
The fastest separation test is not the rate. It is whether the entity will tell you, in writing, which party is to be registered as mortgagee on your title. A private mortgage lender that funds its own deals answers that in a sentence. An arranger will hedge, because the answer genuinely is not settled yet. Also check the entity's legal name and credit licence or credit representative status against the AFCA Financial Firm Search, which is the public member lookup for Australian financial firms. A trading name that does not resolve to a licensed entity is a reason to slow down, not to hurry.
For the broader picture of who these parties are and how the capital reaches them, the pillar guide on private mortgage lenders in Australia covers the market structure. This post stays with the document.
What should a private lender term sheet tell you?
A private lender term sheet should tell you the amount, the security, the conditions, the fees and the date, each in a form specific enough to be tested. A term sheet that reads well but survives no follow-up question is a marketing document, not an offer.
Read it line by line rather than as a whole. The teardown below is the version we run before a client pays anything. Each row has a straight answer and a vague answer, and the gap between them is where the risk sits.
| Term sheet line | What a straight answer looks like | What it means if the answer is vague |
|---|---|---|
| The lender entity | Full legal name and ABN of the party to be registered as mortgagee, with its licence or credit representative status stated | A trading name only, or a different entity on the fee invoice than the one on the offer |
| Amount and drawdown | A facility limit, the amount available at settlement, and any amount held back until a condition is met | An amount expressed only as up to a figure, with no held back portion named |
| Security and ranking | The property, the ranking taken, and any consent required from an existing mortgagee | Security described as property to be confirmed, or ranking left unstated |
| Conditions precedent | A closed list, each condition naming the party responsible for clearing it | Subject to funding, or subject to credit, with no list attached |
| Fees before settlement | Each fee named, the trigger for payment, and whether it is refundable | A single commitment fee with no refund position written down |
| Settlement date | A date the lender commits to, and an expiry date on the offer itself | A period from acceptance with no expiry and no committed date |
| Who signs | The funder or an authorised officer of the funder signs the offer | Signed by an arranger on behalf of a funder to be nominated |
Establishment and legal fees on a private loan are typically deducted at settlement, indicative and varies by lender, so a document that asks for money before settlement is doing something different from the norm and should say why on its face. If your deal is caveat secured rather than mortgage secured, the same teardown applies with a different security line, and the caveat loan page sets out how that ranking works.
What does subject to funding mean on a private loan offer?
Subject to funding means the party that issued the offer does not yet have the money allocated to your deal. It is the single most important phrase on a private lending term sheet and it is the one most often skimmed, because it sits in a conditions list next to routine items like valuation and identification.
The phrase is not automatically a problem. Plenty of credible lenders draw from a facility or a fund and confirm allocation after credit approval. The problem is that the phrase hides a range. At one end it means the funds are committed and the allocation is a formality. At the other it means the deal will be shopped to parties who have not seen it yet. The document reads identically in both cases.
Ask the question that collapses the range: are the funds for this loan under the lender's control today, and if not, who has to say yes before they are. A mandate is not a commitment. An arranger holding a mandate has the right to place your deal, which is a service, not a settlement. In practice the borrowers who get caught are not the ones who dealt with an arranger, they are the ones who did not know they were.
Where the answer is that funds are under the lender's control, ask for the condition list to be closed and dated. Where the answer is that funding is still to be sourced, treat the timeline as an estimate and keep your fallback alive. The guide to how private lending works in Australia covers what happens after you accept terms, which is the stage this condition governs.
Which fees are payable before settlement, and are they refundable?
Fees payable before settlement usually cover third party costs and, on some offers, the arranger's own position, and whether any of it is refundable depends entirely on what the document says rather than on market convention. Valuation and legal disbursements are real costs incurred whether or not the deal completes. A commitment or mandate fee is a different animal.
Set the two apart on the page in front of you. A cost recovery is tied to a service you can see evidence of, typically a valuation instruction or a solicitor's engagement. A mandate or commitment fee is payment for exclusivity and effort, and it is the fee most likely to be non refundable in circumstances the borrower did not anticipate.
A fee structure that passes
- Each fee named separately with its trigger for payment
- Third party costs invoiced or evidenced, not estimated in a lump
- Refund position written into the offer, not promised verbally
- Funds paid to a solicitor's trust account where the fee is a cost recovery
- The entity receiving the fee matches the entity issuing the offer
A fee structure that fails
- One combined fee covering unspecified work
- Payment demanded before a written offer is issued
- Refund position silent, or described only as at our discretion
- Payment directed to an entity not named anywhere in the offer
- Fee due before the security property has been inspected or valued
None of the items on the right make a lender illegitimate on their own. Taken together they describe a deal where the borrower carries all of the cost of the process and the funder carries none of the obligation to complete it, which is the exact position you are trying not to be in when a settlement date is close.
Can the lender settle at the size and on the date they quoted?
Whether a lender can settle at the size and on the date quoted is a capacity question, not a credit question, and it is tested differently from everything else on the term sheet. Credit tells you whether the lender wants your deal. Capacity tells you whether they can do it at that number, this month.
The settlement date is a capacity question. A lender with the appetite and not the allocation will still issue the offer, because the offer costs nothing to write. The test is specificity under mild pressure. Ask what the lender has settled at this size recently in this security type, ask whether the funds come from a single source or several, and ask what would need to happen for the date to move by a fortnight. A funder answers those in operational detail. A party without the money answers in reassurance.
One more test worth applying quietly: ask who the lender's solicitor is and whether they have been instructed. Instructions to a solicitor cost money, which means an entity that has instructed one has already spent something on your deal. It is not proof of capacity, but it moves the balance of effort from your side of the table to theirs.
Who is on the other side of the deal when a broker arranges it?
When a broker arranges a private loan, the counterparty is still the funder, and the broker's job is to make that party visible to you rather than to stand in front of them. That is the distinction worth holding onto, because a broker is not the alternative to knowing who the funder is. A broker is how you find out.
In a clean arrangement the paperwork shows it. The offer is issued by the funding entity, the mortgage is registered in that entity's name, the fees are disclosed, and the broker's remuneration is disclosed separately. You should be able to see the whole chain. Where the chain is obscured, the question to ask is not whether a broker is involved but why the funder is not named.
This also cuts the other way. Some of the strongest offers in this market come through parties who are not funders at all, because they know which funder is active in your security type this month. That is genuine value. It stops being value the moment the arrangement is presented as a funding commitment when it is a search. Non-bank lenders vary widely in how they present themselves, and the decision framework in the private mortgage borrower decision guide is a reasonable companion to this teardown.
What should you ask before you pay anything?
Before you pay anything, ask the four questions that establish who is funding, whether the money is allocated, what your fee buys and what happens if the deal stops. Everything else can be resolved after settlement. These four cannot.
Which entity will be registered as mortgagee. The answer should be a legal name and an ABN, and it should match the entity issuing the offer and the entity receiving any fee. Where the three do not match, ask why in writing before you go further.
Are the funds for this loan under your control today. If the answer is yes, ask for the condition list to be closed and for the offer to carry an expiry date. If the answer is no, you are dealing with an arranger, which is workable as long as the timeline and the fee structure reflect it.
What does this fee buy, and what happens to it if the loan does not settle. The answer belongs in the document. In practice a lender who will not write the refund position into the offer is telling you what the refund position is.
Who signs the final commitment, and what is still open. Conditional approval and a funding commitment are different instruments. Knowing which one you hold changes what you can safely rely on when you are negotiating a settlement extension with the other side of a property transaction. If you want a second read on a document before you sign it, that is a conversation worth having, and the property lending hub collects the related material for property secured deals.
If the property in question is a development or construction asset, the sequencing of a private facility against the rest of the funding stack is set out in our construction loan pack, which covers how short-term property-secured facilities sit alongside equipment, vehicle and working capital lines.
A private lender term sheet is a document about price, and the question it rarely answers on its own is a question about control. Work out which entity will be registered as mortgagee, whether the funds are allocated today, what your upfront fee buys and what happens to it if the deal stops. Those answers separate a funder from an arranger, and an arranger from an introducer, without you needing to know anything about the party's balance sheet.
Key takeaway: Before you pay a fee, get the funding entity named in writing and the refund position written into the offer.Frequently Asked Questions
The lender named on a term sheet is not always the party that funds the loan, and on private deals the two are separate often enough to be worth checking every time. The entity on the paper can be the funder, an arranger with a mandate to place the deal, or a manager acting for a fund or a group of investors. Ask which entity will appear as mortgagee on the security documents and whether that entity holds the money today. The private mortgage lender glossary entry sets out the roles these parties take.
A private lender can change the rate after a term sheet is issued, because most term sheets are indicative offers rather than binding commitments until the conditions are satisfied and formal documents are issued. Repricing typically follows a valuation that lands short, a change in the security position, or an extension of the settlement date. Ask the lender to state in writing what would trigger a change and by when the pricing is locked. Pricing behaviour varies widely between non-bank lenders, and the guide to how private lending works in Australia covers what it costs and what lands in your account.
A mandate fee on a private loan is an upfront payment for the exclusive right to place or arrange your deal, and it buys you effort rather than money. It is not the same as a funding commitment, and a mandate is not a commitment. Before paying one, ask what happens to the fee if no funder is found, and get the answer in the document rather than in an email. Where speed is the reason you are paying it, the requirements set out in what private lenders need to fund fast are usually the faster lever.
An application fee is usually not refundable if the loan does not settle, because it is typically drawn down against third party costs such as valuation and legal work as those costs are incurred. What varies is how much of the fee has actually been spent at the point the deal stops. The refund position should be written into the term sheet with the fee itself, not left to a conversation after the event. If the security is a caveat rather than a registered mortgage, the cost profile differs again and the caveat loans page explains the structure.
Conditional approval means a credit decision has been made subject to conditions still being met, while a funding commitment means the party holding the money has agreed to settle on stated terms once those conditions are cleared. The practical difference is who carries the risk if something moves. A conditional approval can be withdrawn when a condition fails, so ask which conditions remain open and who has authority to sign the final commitment. The private lending glossary entry covers how these offers are structured.
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