A term sheet is a short document that lays out the proposed key terms of a transaction, whether a loan, an equity investment, or an acquisition, before the parties move to a fully negotiated legal agreement. It typically covers items like loan amount, interest rate, term length, amortization, fees, and any major conditions, giving both sides a shared reference point before drafting formal documents.
Term sheets are generally non-binding, aside from certain provisions like confidentiality or exclusivity that the parties may choose to make enforceable. Their purpose is efficiency: rather than negotiating every detail inside a lengthy legal contract, the parties agree on the broad strokes first, which the attorneys then translate into binding loan documents or partnership agreements. For real estate investors, reviewing a term sheet carefully matters because it establishes the economic framework, such as preferred returns, fee structure, and distribution waterfall, that will govern the deal. Changes made after a term sheet is signed are typically minor compared to what it originally outlines.
Further reading: Because You Built This
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