Reviewing a Debt Term Sheet
April 5, 2021 by Kaylan Pepin
Term sheets help lenders and founders align early. They are common in both equity and debt financing, but the language in a debt offer can feel unfamiliar.
Why term sheets?
A term sheet is a practical way to focus negotiations and put the key economic points of an offer in writing. It normally arrives before final underwriting and before the binding letter of offer.
That makes it a useful checkpoint: early enough to negotiate, but specific enough to reveal what the financing will actually require.
Vocabulary to watch
Debt introduces concepts that do not appear the same way on an equity term sheet. The interest rate is only one part of the cost and structure.
- Amortization: how long repayment is spread over.
- Term: when the facility matures or must be renewed.
- Covenants: the promises and performance tests attached to the loan.
- Fees, warrants, royalties, and bonuses: other ways a lender may participate in the economics.
The point
Ask for definitions, compare the whole offer, and do not treat a familiar-looking headline rate as the entire deal. A good term sheet makes the next conversation clearer for everyone.