A term sheet is one page that determines the next six to eighteen months of your cash flow, and the average owner reads it in under a minute, eyes landing on the big number at the top and skipping most of the rest. Funders know this. It is why the approved amount is printed large and the fee table is not.
This article is the slow read: every block a funding term sheet contains, what each field actually means, and the three pieces of arithmetic that turn the page into a decision. It pairs with our guide to the questions to ask before signing anything; that piece is the conversation to have with the provider, this one is what to do alone with the document first. Read the paper, run the math, then make the call.
First, know what a term sheet is and is not
A term sheet, sometimes titled an approval summary or offer letter, is a proposal: the funder's statement of what it is prepared to do, at what price, under what conditions. It is usually not the binding contract; that comes later, longer, and denser. This matters in both directions. Because it is a proposal, the numbers on it can still move, which makes the term sheet the negotiation stage, not the signature stage. And because it is not the contract, the final agreement can differ from it, which is why the last step in this article is reading the two against each other before you sign anything at all.
Term sheets also expire, and the expiration is real rather than theatrical: the offer was priced against your recent statements, and statements age. A reasonable validity window gives you days to think, and a provider should tolerate that; what the deadline does mean is that the comparison work described below belongs this week, not next month.
The money block: three numbers, not one
The top of the sheet carries the number your eye goes to: the funding amount, called the advance amount on a cash advance or the principal on a loan. Train yourself to read past it to the two numbers that define the deal. The second is the total you will repay: on an advance this is the payback amount, computed as the advance times the factor rate; on a loan it is principal plus all interest over the stated term. The third is the net amount that will actually land in your account after every fee is deducted, and it appears on far fewer term sheets than it should, which is why you compute it yourself from the fee table below.
Worked plainly: a sheet reads $60,000 advance, 1.35 factor rate. Payback is $60,000 times 1.35, which is $81,000, so the headline cost is $21,000. Now apply a $1,800 origination fee taken from proceeds: net to you is $58,200. You are paying $22,800 in total charges to hold $58,200, and every dollar of that arithmetic came off the page; nothing needed to be asked. That cost-per-dollar figure, $22,800 divided by $58,200, is the number that lets you compare this sheet against any other offer, and the comparison tool runs it instantly for as many sheets as you collect.
The payment block: amount, frequency, and the word estimated
Next find what leaves your account and how often: a fixed daily or weekly debit, a monthly loan payment, or a holdback percentage of card sales. Two details in this block repay close reading. First, the frequency arithmetic: a $780 daily remittance is not comparable to a $780 weekly one, and daily payments compound the pressure of a slow stretch. Multiply the debit to a monthly figure, put it next to your real monthly deposits, and test it against your slowest recent month, not your average one; the affordability checker does exactly this test.
Second, the word estimated. On an advance, the term shown, say seven months, is a projection, not a promise: you are selling a portion of future receivables, and the sheet estimates how long collection will take at current revenue. If the sheet pairs a fixed daily debit with an estimated term, look for whether the agreement includes reconciliation, the mechanism that adjusts the debit when revenue genuinely drops. Its presence or absence changes what a bad month costs you, and it is a headline item in the questions to ask the provider once your reading is done.
The fee table: where the sheet earns its slow read
Fees are the distance between the amount approved and the amount received, and between the quoted cost and the true one. Read for origination fees, underwriting or processing fees, platform fees, ACH setup fees, wire fees, and monthly administration charges, and note which are deducted from proceeds versus charged along the way. Each is a line; together they move the real price. The $1,800 in the example above raised the effective cost of every borrowed dollar by shrinking what you actually held.
Also read for the fees that only fire later: NSF or missed-payment fees, default fees, stacking penalties, and payoff-letter charges. They cost nothing today, which is why they are easy to skim past, and they define exactly how expensive a bad week becomes. The fee guide walks every one of these charges in detail, with the going ranges and the negotiable ones flagged. A sheet whose fee table is vague, or missing, is not a cheaper deal; it is an unpriced one.
The security block: what stands behind the deal
Near the bottom, in the densest type, the sheet states what secures the funding. Three items to find and understand rather than skim. A UCC filing: most funders will file a UCC-1 against business assets, standard practice with real consequences for your next round of funding, covered fully in our UCC lien guide. A personal guarantee: the clause that reaches past the business to you, and what a guarantee actually commits is worth understanding before, not after. And any mention of a confession of judgment, which is the single term on a sheet that should always route the paperwork to an attorney before signature.
None of these is automatically disqualifying; UCC filings and guarantees appear in a large share of small-business funding. The point of the slow read is that they should never be discovered after signing, and a sheet that discloses them plainly is, itself, evidence about the funder.
Last pass: conditions, expiration, and the contract check
Finish with the conditional language: the stips the approval depends on, the statement refresh before funding, the validity date. These tell you what remains between this page and money, and how fast you need to move.
Then, when the final agreement arrives, perform the reading that almost nobody does: put the contract next to the term sheet and verify that the amount, factor rate or interest rate, payment, term, fees, and security terms match what was proposed. Discrepancies happen, occasionally by error and occasionally not, and the moment to catch one is before signing, when fixing it is a sentence in an email. If anything material moved between sheet and contract, that is a conversation, and if the contract contains security terms the sheet never mentioned, that is an attorney's hour well spent. The sheet is the promise; the contract is the deal. Make sure they are the same document wearing two names.
How to read a funding term sheet
Identify the three money numbers
Find the amount funded, compute or confirm the total payback (advance times factor rate, or principal plus all interest), and calculate the net that reaches your account after fees deducted from proceeds. Write all three down.
Compute the cost per dollar received
Subtract net funds from total payback, then divide by net funds. This single figure prices the deal honestly and makes it comparable to any other structure, or let the tool at /tools/compare-funding-offers run it for you.
Convert the payment to monthly and test it
Multiply the daily or weekly debit to a monthly figure and set it against your slowest recent month of deposits, not your best. Check whether the term is fixed or estimated, and whether reconciliation language exists for revenue drops.
Read the fee table twice
First pass for fees that shrink your proceeds now: origination, processing, wire. Second pass for fees that fire later: NSF, default, payoff letter. Note any fee the sheet implies but does not price.
Find the security terms
Locate the UCC filing language, the personal guarantee, and any confession of judgment. Understand each before signing; route a confession of judgment, or any guarantee whose reach is unclear, to an attorney.
Note conditions and the expiration date
List the stips the approval depends on and the sheet's validity window, so you know what remains before funding and how long the pricing holds.
Reconcile the final contract against the sheet
Before signing, verify the contract's amount, rate, payment, term, fees, and security match the term sheet exactly. Query any discrepancy in writing, and treat new security terms that appear only in the contract as a stop sign.
Frequently asked questions
Is a term sheet legally binding?
Generally no; it is a proposal summarizing the deal the funder intends to offer, and the binding commitments live in the final agreement. That is precisely why the term sheet stage is the time to question numbers and negotiate, and why the final contract must be read against the sheet before you sign it.
Can the numbers on a term sheet change before funding?
Yes, in defined circumstances: the approval is re-verified against fresh statements before funding, and a meaningful change in deposits, balances, or new obligations can reprice or void the offer. This is also why comparing sheets promptly matters; an expired sheet gets re-underwritten, not automatically renewed.
What is the single most misread field on a funding term sheet?
The estimated term on an advance. Owners read seven months as a fixed schedule, but on a receivables purchase it is a projection at current revenue: collections can run longer in slow stretches, and paying faster than the estimate does not shrink a fixed payback amount unless the agreement includes an early payoff discount.
My term sheet does not show the net amount I will receive. Is that a red flag?
It is common, and it is fixable in one written question: what lands in my account after all deductions? Compute it yourself from the fee table meanwhile. A provider unwilling to state the net figure in writing, however, has turned a formatting gap into a genuine warning sign worth heeding.
Should a lawyer review every term sheet?
For a straightforward sheet whose numbers reconcile and whose security terms you understand, many owners proceed to the contract stage without one. An attorney earns their fee whenever a confession of judgment appears, a guarantee's reach is unclear, or the final contract diverges from the sheet; contract questions belong with a lawyer, not a sales rep.