Term sheet

What is a term sheet?

A term sheet summarizes what the lender is willing to do: how much, at what rate, for how long, secured by what, and subject to which conditions. It comes after initial review and before full underwriting or final documents. Think of it as the lender's offer in plain form.

Most term sheets say they are not a commitment to lend, and the final terms can change if underwriting finds something new. A commitment letter is the stronger version, issued after underwriting and binding on the lender once you accept and meet its conditions. Our guide to reading a term sheet goes line by line.

How is a term sheet used?

You use it to compare offers and to settle the terms that matter before documents are drafted. A typical term sheet for a bank term loan looks like this.

• Amount: $250,000.
• Rate: prime plus 2.5%, variable.
• Term: five years, monthly payments on a five year amortization.
• Fees: 1% origination, plus legal and filing costs.
• Security: blanket lien on business assets and an unlimited personal guarantee from each owner over 20%.
• Covenants: minimum DSCR of 1.25, annual financial statements within 120 days of year end.
• Conditions: satisfactory underwriting, updated tax returns, proof of insurance.

Everything on that list is negotiable now. Once you sign the loan agreement, almost none of it is.

What do lenders consider normal?

A normal term sheet covers amount, rate, term, repayment schedule, fees, collateral, guarantees, covenants, prepayment terms and the conditions to close. Banks and SBA lenders issue them as a matter of course. Online lenders and cash advance providers often skip the term sheet and send a contract straight away, which is itself worth noticing.

It is normal for a term sheet to expire, typically within 30 days, and for a lender to ask for a deposit toward appraisal or legal costs on larger real estate deals. It is not normal to pay a fee simply to receive one.

What should you watch for?

Watch for what is missing. If the term sheet shows a payment but no APR or total cost, ask. If it shows a rate but not whether it is fixed or variable, ask. If prepayment is not mentioned, assume there may be a penalty and ask for the clause.

Watch the conditions, since that is where approval can quietly unwind: a term sheet subject to a satisfactory appraisal or landlord waiver can fall apart weeks later. Watch for covenants you cannot realistically keep, like a DSCR floor just above where you sit today. And keep the term sheet after closing, in case the final agreement differs.

Related terms

A term sheet is where you first see the origination fee, the personal guarantee and any DSCR covenant together, and its conditions become your stips. You will see formal term sheets most on term loans and commercial real estate loans. You can apply here, or ask your AI assistant to compare term sheets side by side and apply for you through our MCP server.