Term Sheet
A term sheet is a mostly non-binding document that outlines the key terms and conditions of a proposed loan before the full legal documents are drafted. It sets out the amount, pricing, term, collateral, covenants, and conditions the parties agree to in principle, serving as the blueprint the loan agreement is built from once both sides commit.
What a Term Sheet Is
A term sheet is the summary of a deal before the deal is papered. When a lender and borrower agree in principle on a financing, they capture the essential terms in a term sheet so both sides know what they are committing to before spending time and money on full legal documentation. It is short relative to a loan agreement, usually a few pages, and it is where the real negotiation happens: once the term sheet is signed, the definitive documents largely translate it into binding legal language.
What a Term Sheet Contains
For a commercial loan, a term sheet typically covers the terms that define the economics and the risk:
- Facility type and amount (for example a revolving facility or term loan) and, in ABL, the advance rates against collateral.
- Pricing: interest rate or spread, fees, and any unused-line fee.
- Term and maturity, and the amortization or repayment structure.
- Collateral and security, guarantees, and any financial covenants.
- Conditions precedent to closing and funding, and key protections and reporting requirements.
Binding vs Non-Binding
Most of a term sheet is non-binding: it expresses intent and the terms agreed in principle, but either side can still walk away before signing definitive documents. A few provisions are usually binding even at the term-sheet stage, commonly exclusivity (the borrower will not shop the deal for a period), confidentiality, and who pays expenses if the deal falls through. Reading which parts bind and which do not is essential, because the label term sheet does not by itself make the whole document non-binding.
Why It Matters
The term sheet is the blueprint for everything that follows. The rate, structure, collateral, and covenants it sets become the terms the loan agreement enforces and, ultimately, the terms a lender has to service over the life of the loan. Getting them right, and understood, up front avoids expensive renegotiation later and sets clear expectations for both the credit and the relationship.
How Zolvo Fits
The economics a term sheet sets, the rate, schedule, advance rates, and covenants, are exactly what a lender then has to administer accurately for years. Zolvo automates that servicing: applying and reconciling payments against the agreed terms, monitoring covenants and collateral, and keeping the loan data current, on top of the systems a lender already runs, so the facility performs as the term sheet intended. See private credit and asset-based lending.
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