When visiting business banks to seek a commercial loan, it’s a good idea to request a commercial loan
term sheet. A term sheet is a sign your loan request is moving forward. It’s usually issued after the loan officer and credit officer have reached an accord on proposed terms, and before the full underwriting of the loan request.
Commercial bankers use these non-binding documents to achieve a number of goals. First, a term sheet is meant to give the loan applicant a sense of the parameters and terms of the loan, should it be approved. Second, a term sheet provides the loan applicant the assurance her loan request has been formalized. And third, the offer of the term sheet is a signal to the borrower she can submit a deposit, and doesn’t need to shop other banks to determine if they can better the offer the term sheet lays out.
Here are a few ways commercial loan term sheets help your banker serve you better:
· Term sheets are sometimes called conditional commitment letters. They are not actual commitment letters. These documents do not legally bind lenders to proceed. However, they do demonstrate lenders’ interest in making commercial loans. They also provide good faith estimates of loan terms.
· The term sheet should summarize the primary terms and options, identifying the prospective borrower and the lender, and listing terms that start with the loan amount and include the interest rate, maturity, collateral and fee.
· The term sheet is written in specific non-binding language. That language states that after undertaking due diligence, the lender can turn down the loan request. However, a term sheet is often a positive indication the loan will be granted.
Borrowers usually collect multiple competitive commercial loan term sheets from banks. They should also learn as much as possible about the loan-closing records of banks from which they’ve sought term sheets.
What questions do you have about commercial loan term sheets?
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