Reading a Term Sheet: Fees, Conditions and Maturity
A preliminary term sheet summarizes how a lender proposes to structure a loan. It is usually subject to conditions and final documentation, but it is the best early view of what you are agreeing to. Read it line by line.
Amount, term and rate
Check the loan amount against what you actually need, the term against your repayment plan, and the rate against how interest is calculated and paid. Note whether payments are interest-only or include principal, and whether interest is paid monthly or deducted at funding.
Fees
Look for a lender fee, a broker fee where one applies, legal costs, valuation costs and any administration or renewal charges. Ask whether fees are deducted from the advance, which reduces the cash you receive at funding.
Security and conditions
The security section lists what is pledged and in what position. The conditions section lists what must happen before funding: valuations, title work, insurance, corporate documents, confirmations from other lenders. Each condition is a task with a timeline; understand what remains outstanding.
Maturity and early repayment
Confirm the maturity date, what is due on that date, whether an extension is available and at what cost, and what early repayment requires. Minimum interest clauses and prepayment notice periods can change the economics of repaying early.
If something is unclear
Ask before signing. A term sheet is a conversation starter, and a lender should be able to explain every line.
This article provides general information and is not personal financial, tax, legal, or insurance advice. Obtain advice relevant to your circumstances before entering a financing arrangement.
