Loan Term Sheet Template

A loan term sheet is a crucial document used in the finance industry to outline the terms and conditions of a loan agreement before it is formalized. It serves as a preliminary agreement between the borrower and the lender, detailing the key aspects of the loan. This document is essential for both parties to ensure clarity and agreement on the terms before proceeding with a formal contract.

1. Introduction

The term sheet is a non-binding document that outlines the main aspects of the loan. It provides a framework for the final loan agreement, helping both parties understand and agree on the major terms before drafting the definitive contract.

2. Basic Information

• Borrower: The entity or individual requesting the loan.
• Lender: The financial institution or individual providing the loan.
• Loan Amount: The total amount of money to be borrowed.
• Purpose: The reason for the loan, such as business expansion, refinancing, or personal use.

3. Key Terms and Conditions

• Interest Rate: The cost of borrowing, expressed as an annual percentage rate (APR). It can be fixed or variable.
• Term Length: The duration over which the loan will be repaid. This can range from a few months to several years.
• Repayment Schedule: Details on how often payments are made (e.g., monthly, quarterly) and the amount of each payment.
• Collateral: Assets pledged by the borrower to secure the loan. This can include property, equipment, or other valuable items.
• Covenants: Conditions that the borrower must adhere to during the loan term, such as maintaining certain financial ratios or not taking on additional debt.

4. Fees and Charges

• Origination Fees: Fees charged by the lender for processing the loan application.
• Prepayment Penalties: Fees incurred if the borrower pays off the loan early.
• Late Fees: Charges applied if payments are made after the due date.

5. Representations and Warranties

• Borrower’s Representations: Statements made by the borrower about their financial condition and ability to repay the loan.
• Lender’s Representations: Statements made by the lender regarding their capacity to provide the loan.

6. Conditions Precedent

Conditions that must be met before the loan agreement is finalized. These can include the completion of due diligence, obtaining necessary approvals, and finalizing legal documentation.

7. Confidentiality

A clause specifying that the terms of the loan and the term sheet itself must remain confidential and not be disclosed to third parties.

8. Governing Law

The jurisdiction and laws that will govern the loan agreement. This is typically the location where the lender is based or where the loan is originated.

9. Termination

Conditions under which the term sheet can be terminated by either party, such as mutual agreement or failure to meet specified conditions.

10. Signatures

• Borrower’s Signature: Acknowledgment and agreement to the terms outlined in the term sheet.
• Lender’s Signature: Confirmation of the willingness to proceed under the outlined terms.

Example Term Sheet

Conclusion

The loan term sheet is an essential tool for ensuring both parties are aligned on the key aspects of the loan before moving forward. It helps to prevent misunderstandings and provides a clear outline of what to expect in the formal loan agreement.