A term sheet is a detailed summary that shows the terms of how a financier: be it a person or an institution like bank intends to invest in your business either by lending you money or by acquiring a certain controlling stake in the same. There are also other circumstances like the sale or hiring out of your business in which you can get a term sheets.
Even though term sheets are basically meant for the same purpose, they need not be exactly the same and may vary from situation to situation and from one person/company to the other.
A financing term sheet means a business deal is in the making. Among the details that are included in the term sheet are: the names of all the concerned parties, their contact addresses and their physical locations. Any other detail that is required is filled up. It may also include the names of companies or people who are backing the financier(s). Also included is when the deal is expected to be closed, the date and for how long the deal is going to last. Also important is when the agreement will be invalidated and under what circumstances.
The amount that the financier in question is backing your business with and what they stand to gain from the deal are also covered. Mostly, it will be a number of shares or a warranty. If there are any complex figures involved in the case of warranties, a detailed breakdown of figures is given.
If you are selling a stake of your business; for example, shares, the term sheet will include details of the price per share. The price per share will be listed in accordance with the latest listings for a public company; and for a private one, the parties agree under the guidance of financial experts.
Terms of confidentiality are drawn up to maybe prevent one from talking business to other investors while the previous agreement is still valid.
Bills and expenses that are incurred during the whole transaction are listed. The parties agree on who is to foot them. Law firms that deal with corporate and finance law help draw up all the details to the satisfaction of all parties and in accordance with the law. Defining a term sheet needs not be seen as a mammoth task as help is available online, and so are sample term sheets.