Term Sheet / Letter of Intent (LOI)

A term sheet (or letter of intent) is a preliminary, mostly non-binding document outlining the proposed key terms of a loan or transaction — amount, rate, term, leverage, fees, and major conditions — before full underwriting and legal documentation begin. It sets expectations for both parties and identifies deal-breaking issues early, though most substantive terms remain subject to change until final loan documents are signed.

Term sheets serve as the negotiating checkpoint before either party commits significant time and expense to full underwriting, legal document drafting, and third-party reports (appraisal, environmental, engineering). A well-negotiated term sheet locks in the economically important terms — rate, leverage, recourse, prepayment structure, key covenants — so that later-stage surprises are minimized.

Most term sheets include an explicit statement that they are non-binding except for specific carved-out provisions, typically the borrower's obligation to pay third-party report costs, an exclusivity or good-faith deposit, and confidentiality. This means a lender can still decline to close after issuing a term sheet if underwriting reveals issues, and a borrower isn't contractually obligated to close just because they signed one.

Borrowers evaluating competing term sheets should look well beyond the headline rate — leverage, recourse (or lack thereof), prepayment penalty structure, extension options, and reserve requirements often matter more to the deal's real economics than a small difference in quoted rate.

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