Loan Term Sheet Template: A Comprehensive Guide for Borrowers and Lenders

A loan term sheet is a critical document in the loan financing process, outlining the key terms and conditions agreed upon by both the borrower and lender before the formal loan agreement is drafted. This template serves as a preliminary document, detailing the proposed loan terms that will be finalized in the full loan agreement. It is crucial for both parties to clearly understand and agree upon these terms to avoid future disputes and ensure a smooth lending process.

1. Loan Amount: The total amount of money that the lender agrees to provide to the borrower. This figure is typically determined based on the borrower’s financial needs and ability to repay.

2. Interest Rate: The rate at which interest will accrue on the loan amount. This can be fixed (remaining constant throughout the loan term) or variable (changing at specified intervals based on market conditions).

3. Repayment Schedule: Details the frequency of payments (monthly, quarterly, etc.), the amount of each payment, and the duration of the loan. This section outlines how and when the borrower will make payments to repay the loan.

4. Loan Term: The total length of time over which the borrower will repay the loan. This is usually expressed in months or years. A longer term generally means lower monthly payments but more interest paid over the life of the loan.

5. Collateral: Assets that the borrower offers as security for the loan. If the borrower defaults, the lender has the right to seize the collateral to recover the outstanding loan amount.

6. Covenants: Specific conditions or requirements that the borrower must adhere to during the loan term. These can include financial ratios, operational benchmarks, or restrictions on additional borrowing.

7. Fees and Costs: Any additional charges that may be associated with the loan, such as origination fees, application fees, or prepayment penalties.

8. Default Terms: Conditions under which the borrower would be considered in default, and the remedies available to the lender in case of default. This may include acceleration clauses that require immediate repayment of the entire loan balance.

9. Governing Law: The legal jurisdiction that will govern the loan agreement and any disputes arising from it.

10. Other Terms and Conditions: Any other relevant details that do not fall into the categories above but are important for the loan agreement.

Sample Loan Term Sheet Template

Loan Term Sheet

Borrower: [Borrower’s Name and Address]
Lender: [Lender’s Name and Address]
Loan Amount: [Amount in USD]
Interest Rate: [Fixed/Variable] at [Rate]% per annum
Repayment Schedule: [Monthly/Quarterly] payments of [Amount] over a period of [Number] months/years
Loan Term: [Number] months/years
Collateral: [Description of Collateral, if applicable]
Covenants: [List of Covenants]
Fees and Costs: [Description of Fees]
Default Terms: [Conditions and Remedies]
Governing Law: [Jurisdiction]
Other Terms and Conditions: [Additional Terms]

Signature of Borrower: ___________________________
Signature of Lender: ___________________________
Date: ___________________________

Understanding the Loan Term Sheet

The loan term sheet is essentially a blueprint for the final loan agreement. It provides a structured outline of the proposed terms, which helps in negotiating and clarifying the details before drafting the formal document. Both parties should carefully review each section to ensure that the terms are acceptable and reflect their agreement.

Key Benefits of Using a Loan Term Sheet

• Clarity: It ensures that both the borrower and lender have a clear understanding of the loan terms.
• Negotiation Tool: Allows for negotiation of terms before the formal agreement is prepared.
• Legal Protection: Provides a reference point in case of disputes regarding the agreed terms.
• Efficiency: Speeds up the process of drafting the final loan agreement by outlining the key terms in advance.

Conclusion

A well-prepared loan term sheet is an essential component of the lending process. It serves as a preliminary agreement that outlines the main terms and conditions of the loan, providing both parties with a clear understanding of their commitments and obligations. By using a detailed and structured term sheet, borrowers and lenders can minimize misunderstandings and streamline the finalization of the loan agreement.