So You Got a Term Sheet — Now What?
You’ve done the hard part. You found the right lenders, told your story, shared your financials, and now there’s a term sheet in your inbox. Congratulations — that’s a real milestone.
But this is where a lot of founders make costly mistakes. A term sheet is not a closed deal. It’s the starting line of a process that, if handled well, gets you better terms and a stronger lender relationship — and if handled poorly, can cost you weeks, dollars, or the deal itself.
Here’s what to do after you receive a term sheet, based on what we’ve seen work across hundreds of transactions on Hum’s Intelligent Marketplace.
Step 1: Don’t sign immediately — but don’t sit on it either.
Most term sheets have an expiration window, typically 5–14 business days. That’s real time, but it’s not infinite. Use it wisely. Review the document carefully, loop in your advisors, and prepare your questions. But don’t let it expire while you deliberate — that sends the wrong signal to the lender.
Step 2: Understand what’s binding and what’s negotiable.
Most debt term sheets are non-binding, meaning the key economic terms (rate, amount, maturity) are indicative, not final. But some provisions — like exclusivity clauses, no-shop periods, and expense reimbursements — may be binding. Know the difference before you sign.
Here’s a quick rule-of-thumb on what is and isn’t on the table to negotiate:
- Deal Economics (interest rate, fees, advance rates) are almost always negotiable.
- Covenants and reporting requirements are often negotiable.
- Timeline and exclusivity are sometimes negotiable.
Step 3: Compare apples to apples.
If you have multiple term sheets, build a simple comparison framework. Look at the total cost of capital, not just the headline rate. A lower interest rate with higher fees and tighter covenants may end up costing you more than a slightly higher rate with more flexibility.
Key metrics to compare: all-in cost of capital (rate + fees + warrants if any), covenant package (what triggers a default?), advance rate or borrowing base (how much can you actually draw?), maturity and amortization schedule, prepayment penalties, and reporting requirements.
Step 4: Ask the questions that matter.
Beyond the numbers, you’re choosing a partner. Ask the lender: How do you handle covenant waivers and amendments? What’s your typical response time? Have you ever accelerated a loan, and under what circumstances? Who will be my day-to-day contact after closing? What does your portfolio monitoring process look like?
The answers tell you more about the lender than the term sheet does.
Step 5: Negotiate with data, not emotion.
If you want better terms, come with reasons — not just “can you do better?” Reference comparable deals if you have them. Explain why a specific covenant threshold doesn’t fit your business model. Show the lender that you’ve done your homework and that your ask is grounded in reality.
Lenders respect borrowers who negotiate intelligently. It signals that you understand your business well enough to advocate for the right structure.
Step 6: Prepare for diligence before you sign.
Once you sign a term sheet, formal due diligence begins — and it can be the longest phase of the entire process. Get ahead of it. Have your financials, projections, cap table, material contracts, and corporate documents organized and ready to share. The faster you respond to diligence requests, the faster you close.
Companies that come to Hum with a clean data room typically close 2–3 weeks faster than those who scramble to assemble documents after signing.
Step 7: Close with momentum.
Once diligence is underway, keep the process moving. Assign an internal point person. Respond to lender requests within 24–48 hours. Flag potential issues early rather than letting them surface in week six. The companies that close smoothly are the ones that treat the post-term-sheet process with the same urgency as the fundraise itself.
A term sheet is a great sign — it means a lender has looked at your business and said “we want in.” What happens next determines whether you get the best possible version of that deal.
→ Ready to explore your options? Speak to Hum.
