What is the purpose of a term sheet?

A term sheet serves as a nonbinding document that outlines the key terms and conditions of an investment or debt obligation. It acts as a preliminary agreement between parties, summarizing the main financial aspects of a potential transaction, such as the amount of financing, the interest rate, the repayment terms, and any other essential provisions. By being nonbinding, the term sheet allows both parties to negotiate further details without being legally bound until a formal contract is established. This document is critical in facilitating discussions and ensuring that all parties have a mutual understanding of the fundamental components before proceeding to a definitive agreement.