The Purpose of a Term Sheet
(originally published 03/22/19)
When we first started offering the FundingNet program directly to end-borrowers in the Film Industry we quickly found something that we hadn't expected - not a lot of indie filmmakers seem to understand what a term sheet is meant to accomplish. When we sent out one of our first term sheets to a production house, they sent back a "redline" version that looked like a murder scene..... In that instance, it quickly became clear that they (and their "entertainment attorney") were treating the term sheet as a formal loan contract, and they wanted every possible detail and legal stipulation to be included. But that is not what a term sheet is meant to do. Similar to a "letter of intent", a Term Sheet is simply a preliminary, non-binding document that defines the basic terms of a impending agreement, and is generally set up by the party making the offer. It summarizes the principal points necessary for the offer to be formally extended to enter into a contract. Once both parties have agreed to those major aspects of the deal, the Term Sheet will serve as a starting point to develop the more detailed, binding documents. A Term Sheet also has to walk the line between having too much detail and too little - if there is too little detail you may find that one or more key elements haven't been addressed that could cause the deal to fall through. Too much detail (as with that initial client mentioned earlier) will cause delays because it is like negotiating a final contract before you have ever established the general terms. The term sheet simply needs to cover the major elements of an offer. The more refined details can be hammered out by the legal teams when the deal gets to the contract stage. By making it too complicated, that early potential client of ours (and the lawyer they were working with) were trying to negotiate a final contract before we had even established the terms, and as result the deal was never able to get anywhere.