Term Sheet
Last updated October 1, 2026
A term sheet is a short document that sums up the main terms a lender is willing to offer on a loan. It usually comes early, after a first look at the deal but before full underwriting and final approval. Most term sheets are non-binding. They show what the lender has in mind, but neither side has to close on those terms.
A typical loan term sheet covers:
- Borrower, guarantors and loan purpose
- Loan amount, interest rate and term
- Repayment, such as amortizing or interest-only
- Fees, such as an origination fee or exit fee
- Collateral and any personal guarantee
- Key loan covenants, such as a minimum coverage ratio
- Conditions to close, such as an appraisal or proof of insurance
- An expiration date
Some term sheets ask for a deposit to cover third-party costs, such as the appraisal. Even a non-binding term sheet may include a few binding parts, such as confidentiality or repayment of the lender's expenses. A well-drafted term sheet says clearly which parts bind and which do not.
A term sheet is different from a commitment letter. A commitment letter usually comes after credit approval and obligates the lender to lend, as long as the borrower meets the stated conditions.
Why it matters for lenders
A term sheet lets both sides agree on the shape of a deal before anyone spends real money. The borrower learns early if the amount, rate or structure won't work. The lender avoids paying for appraisals and legal review on a deal that will never close.
It also sets expectations. Many loan disputes start with a surprise fee or a covenant the borrower didn't understand. A clear term sheet lowers that risk.
How it works in practice
A bridge lender receives a request to refinance a small apartment building. After a quick look at the rent roll and a value estimate, the loan officer issues a term sheet. It lists the loan amount, the rate, a 12-month interest-only term, a one-point origination fee and the conditions to close. The borrower signs it and pays a deposit for the appraisal.
Underwriting then confirms or adjusts the terms. The appraisal comes in lower than expected, so the underwriter reduces the loan amount. The credit committee approves the revised deal, and the lender issues a commitment.
Problems start when the term sheet is a Word file and the approved terms sit in a spreadsheet. Staff then type the terms a third time into the closing documents, and mismatches slip through. When the term sheet, the approval and the closing documents draw from the same record, each change is tracked and nothing is retyped.
Related terms
Loan Origination
Loan origination is the process of creating a new loan, from the borrower's first request through intake, document collection, underwriting, the credit decision, closing and funding. It ends when the money goes out and the loan is handed to servicing. How well a lender runs origination shapes its speed, consistency and the quality of every loan it books.
Credit Memo
A credit memo, short for credit memorandum, is the underwriter's written case for or against a loan. It describes the request, the borrower, the repayment source, collateral and guarantors, the main risks and any policy exceptions, then makes a recommendation. Approvers use it to decide, and auditors and examiners use it later to see how the decision was made.
Loan Covenant
A promise in a loan agreement that the borrower will do, or not do, certain things while the loan is open. Covenants include sending financial statements, keeping insurance, staying above a minimum debt service coverage ratio and not taking on more debt without approval. Breaking a covenant can be an event of default, even if every payment is on time.
Origination Fee
An upfront fee a lender charges for making a loan, usually set as a percentage of the loan amount or as a flat dollar fee. It covers the cost of reviewing, approving and closing the loan. The fee is often taken out of the loan proceeds at closing. In commercial real estate and private lending, it is often called points.
Stipulations (Stips)
Stipulations, or stips, are the documents and conditions a funder requires before it will release money, such as recent bank statements, the owner's ID, a voided check or proof of ownership. The term is common in small business lending and merchant cash advance funding. Each stip is typically tracked as requested, received or cleared.
Further reading
See how lenders put this into practice
FUNDINGO runs origination, servicing and reporting on one loan record inside Salesforce.