How to review a debt term sheet

The principle

Typical terms describe amount, purpose, interest, repayment, maturity, security, guarantees, fees, covenants, and funding conditions. A document may outline proposed terms before final underwriting and legal documentation. Its title does not establish whether every provision is binding, so read the language and obtain advice where needed.

Put it into practice

Create a comparison that includes more than the rate. Note the cash received, payment start, amortization, maturity balance, and conditions before each advance. Mark open items and assumptions. If a proposal relies on an acquisition closing, new equity, or an appraisal, connect those events to a realistic timetable.

What people often miss

Exclusivity, confidentiality, expense reimbursement, or other clauses can matter before funds arrive. Do not treat a term sheet as cash available to spend. Confirm what remains subject to approval and whether terms can change after diligence. Keep negotiated changes in the document rather than relying only on conversations or presentation slides.

Turn the proposal into a closing checklist

A fictional proposal offers $150,000 for an expansion. The project budget requires a $20,000 owner contribution, the lender plans to deduct $3,000 of fees from its advance, and $12,000 of the loan will repay an existing facility. That leaves $135,000 of new loan cash and $20,000 of owner cash, or $155,000 for the project. If the budget is $170,000, a $15,000 gap remains despite the $150,000 headline offer.

Next attach conditions to dates. If the new loan cannot fund until the landlord signs a waiver and an appraisal is accepted, a supplier deposit due beforehand needs its own funding plan. Do not count a condition as satisfied because someone expects it to be easy. Record who is responsible, what evidence is required, and whether the lender has confirmed completion.

Source: Debt term sheet: terms and conditions explained

Keep rate, maturity and optionality separate

Suppose a proposed facility uses a five-year payment schedule but matures after three years. The business may still owe a substantial balance at maturity, even if every scheduled payment has been made. Ask for the full amortization table and the contractual maturity amount. A renewal discussion is different from an enforceable right to renew. Likewise, an interest-only opening period can help the project start while leaving more principal to repay later.

Review expense reimbursement, confidentiality, exclusivity and deposits before signing, even if the funding terms are described as indicative. A qualified adviser can identify which clauses bind the business and what remedies apply. Keep an issue list with the current wording, requested change and provider response. Compare the final agreement against the last accepted proposal so that changes to fees, guarantees, security and reporting requirements do not disappear inside a longer document. Record the expiry date and whether an extension requires written consent.

• Is this indicative, conditionally approved or ready for funding?
• Which clauses are binding before closing?
• What amount will actually reach the business and on which date?
• Which terms changed between the proposal and final documents?

Source: SBA: 7(a) loans · Capital Southwest: financing process and term-sheet provisions (issuer filing)

Your next-step checklist

• Economic terms and complete fee list
• Amortization versus maturity
• Binding provisions and expiry dates
• Unmet approval and funding conditions