A term sheet is used by a lender and the borrower to record the main terms of a proposed lending facility as a precursor to preparation of full documentation.

A term sheet is not usually binding, however if a term sheet is agreed by the lender and the borrower, it gives confidence to the parties to be able to proceed with the preparation of full loan and security documentation.

This is the agreement between the lender and the borrower, which sets out the terms of the loan in full and constitutes a binding agreement. The lender and the borrower, when negotiating the terms of the facility agreement, will to a certain extent, have different (and competing) perspectives. The terms of each facility agreement will be tailored to the outcome of the negotiations between the lender and the borrower for a particular transaction.

See Term sheets and facility agreements.

Loans can broadly be divided into two types:

• consumer credit loans regulated by the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) and the National Credit Code (which is found in Sch 1 of the NCCPA). Consumer credit loans can be generally classified as loans by lenders in the course of a lending business to individuals for personal, domestic or household use or residential investment purposes (see the Regulation of consumer credit guidance note in the Consumer credit sub topic); and

• business loans (which are not regulated by the NCCPA).

The type of loan granted from a lender to a borrower will usually be determined by the purpose for which a loan will be used. Typical types of loans are listed below.

If the lender is a bank, the loan is to be used for working capital and the balance is intended to fluctuate from day to day. The loan will often be an overdraft facility.

If the borrower requires funds from time to time and is likely to repay and re-borrow from time to time, a revolving credit facility would be an appropriate type of facility.

If the purpose of the loan is for the acquisition of an asset, or if the borrower is not permitted to re-borrow amounts that have been repaid, a term loan will often be the type of loan entered into.

This type of loan involves facilities where more than one lender is lending the same loan to the same borrower (or borrowers).

If a dispute arises in relation to loan documentation, the provisions of the Code of Banking Practice (Banking Code) must be considered, if the lender is a bank which has agreed to be bound by the Banking Code. As a general rule the provisions of the Banking Code will apply if the loan is governed by the National Credit Code.

See Types of loans.

Business loans are unregulated except to the extent that the lender is a bank and the Banking Code applies. The Banking Code is voluntary. However, once a bank agrees to be bound by the Banking Code, the Banking Code's provisions become contractually enforceable. The Banking Code applies where the borrowers are individuals or small businesses. It imposes various duties, including the duty of disclosure and the duty of confidentiality.

See Code of Banking Practice.