A term sheet is a short written outline of the loan a lender is prepared to consider: amount, rate, term, fees and main conditions. It is usually not binding.
A term sheet arrives after a lender has seen enough to be interested and before it has done its full review. It lists the proposed loan amount, interest rate or the index and spread, term and amortization, fees, collateral, guaranties, prepayment terms, required coverage and loan-to-value, and the reports the lender will order.
Read the first and last paragraphs. Nearly every term sheet says it is an outline for discussion and that any loan is subject to underwriting and credit sign-off. That is the line between a term sheet and a commitment: bank rules treat a legally binding written commitment to lend as an exposure the bank must count, and a term sheet is written so that it is not one.
Signing it usually does two things only: it tells the lender to start work, and it may oblige you to pay a deposit toward the appraisal and other third-party costs.
When comparing two, line up the items that change your cost and your risk: recourse, prepayment, the rate after any fixed period, and reserves, not the rate alone.
How it shows up in the data here
Term sheets are private documents and are not in any public file. To judge whether offered terms are in line, loan comps shows what lenders made or hold for similar loans, and for apartment loans the mortgage disclosure rows carry a reported rate and term. The amortization and balloon calculator turns the listed terms into a payment and a balance at maturity.
Go further
- Amortization and balloon calculator: Payment and balloon balance from the terms on the sheet.
- Loan comps: Similar loans by type, size and state.
- Amortization and balloon calculator: Payment, balance at maturity and interest paid, for a loan that amortizes over longer than it runs.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- How to place a commercial loan with a bank: A bank loan moves through the same stages every time. Knowing them tells you what the bank needs at each point, what its answer means, and where time is lost.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
Related terms
- Letter of intent (LOI): A letter of intent is a short, mostly non-binding letter that sets out the main terms two parties expect to agree on before the full documents are drafted.
- Commitment letter: A commitment letter is the lender's written, binding promise to make a loan on stated terms, if the conditions listed in the letter are met by a set date.
- Credit committee: A credit committee is the group inside a lender that decides on loans above the amount a single loan officer is allowed to decide alone.
- Recourse: A lender's right to collect a loan from the borrower or guarantor personally, beyond the property or other collateral pledged for it.
- Prepayment penalty: A charge a loan agreement sets for paying off some or all of the principal before a stated date. Common forms are a step-down schedule, yield maintenance and defeasance.
- Loan covenant: A promise in a loan agreement that the borrower will do certain things, or will not, for as long as the loan is outstanding, such as keeping a minimum debt service coverage ratio.
- Spread (margin over an index): The fixed number of percentage points a lender adds to an index, such as prime or SOFR, to set a loan's interest rate.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.