Never Sign a Term Sheet Without Reading Every Line S1E12

Ever signed a term sheet without reading every line? You might be building your business on a dangerously shaky foundation. The financial consequences can be severe and unexpected.

Term sheets aren't just preliminary paperwork—they're the DNA of your entire commercial lending relationship. They establish everything from interest rates and fees to collateral requirements and prepayment penalties. Once signed, the rest of your deal will follow this blueprint, making changes expensive and frustrating.

Let me share a cautionary tale: A client of mine skimmed over their term sheet, missing a clause allowing the lender to call the loan if occupancy dropped below 80%. When an off-season downturn hit, that's exactly what happened. The result? A frantic scramble to refinance under pressure, with limited options and bargaining power. This entirely preventable situation cost them significantly in both stress and dollars.

The solution is straightforward but critical: slow down. Read term sheets line by line, preferably with someone experienced in spotting potential landmines. Negotiate aggressively at this early stage—not when you're reviewing final documents. Remember, if it's in writing, it's enforceable; if it's just discussed, it's wishful thinking.

At Cardinal Capital, we treat term sheets like architectural blueprints, ensuring everything is perfectly positioned before construction begins. This approach prevents the equivalent of building staircases that lead nowhere in your financial structure. Whether you've outgrown your bank's credit box or need more creative solutions, we specialize in getting good deals done, even those that don't fit traditional banking templates.

Ready to ensure your next term sheet works for you rather than against you? Connect with me on LinkedIn or visit cardinalcapnet. Keep your capital stack strong and your deals moving forward with the right foundation.

For more commercial capital information, contact us at info@cardinalcap.net

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Transcript

Welcome to Capital Stack

Speaker 1 0:01

Welcome back to Capital Stack where we talk about deals , the dollars and the details that make commercial lending work . I'm Rob Powell , partner at Cardinal Capital , and every week we break down real-world strategies to get your business funded and keep your banker happy , without all the jargon and fine-print headaches . Let's get to it . If I had a dollar for every time a business owner said I didn't think the term sheet was that important , I would retire early and buy a nice boat . The term sheet isn't the final loan agreement , but it is the DNA of your deal . It sets the interest rates , fees , collateral requirements , covenants and prepayment penalties . Once you sign it , the rest of the deal will almost always follow its structure . Changing it later is like changing the floor plan of your house after you've poured the foundation . It's expensive , it's messy and full of regret . A real example here A client skimmed over a clause that allowed the lender to call the loan if occupancy dropped below 80% . Guess what happened ? During an off-season downturn , that clause got triggered and the client had to scramble to refinance under pressure .

Speaker 1 1:12

The lesson Slow down . Read it line by line , ideally with someone who knows where the landmines are . Negotiate the deal at the term sheet stage , not the final document stage . Negotiate the deal at the term sheet stage , not the final document stage . And remember if it's in writing , it's enforceable , if it's not , it's wishful thinking . At Cardinal Capital , we treat term sheets like blueprints . We make sure everything is in the right place before you start building , so you don't end up with the staircase to nowhere . Your takeaway here should be the term sheet sets the tone , so make sure it's in your key . That's it for this episode of Capital Stack . If you've got a deal that needs a smarter structure or a client who's outgrown your credit box , cardinal Capital can help . We're in the business of getting good deals done , even the ones that don't fit neatly into the blank bank's playbook . Connect with me on LinkedIn or visit cardinalcapnet to learn more . Until next time , keep your stack ready and your deals moving forward .