Receiving an SBA 7(a) term sheet is an exciting step in the acquisition process. But it's important to understand that a term sheet is not a loan commitment.
It means the lender is interested in financing the deal, provided it meets the requirements of underwriting, appraisal, environmental review, and other conditions.
Until you receive a formal commitment letter, the financing is not guaranteed.
What an SBA Term Sheet Actually Means
Most SBA term sheets include language similar to:
"This letter is not a commitment to lend and is subject to satisfactory completion of due diligence, credit approval, and appraisal."
This gives the lender the ability to change the loan terms, request additional conditions, or decline the transaction based on what comes up during underwriting.
For buyers, that can mean spending $10,000–$30,000 on quality of earnings (QoE) reports, legal fees, and environmental studies before knowing whether the financing will be approved.
Five Things That Can Change Between Term Sheet and Commitment
1. Appraised value. If the business appraises for less than the agreed purchase price, the lender may need to adjust the loan amount. That could mean requiring a larger equity injection from the buyer or additional seller financing to cover the difference.
2. Tax return verification. Lenders verify tax return information directly with the IRS. If the information you submitted doesn't match the IRS transcripts, even a small discrepancy can delay the process and require additional review.
3. Environmental clearance. Acquisitions involving real estate require a Phase I environmental assessment. If potential contamination is identified, additional testing through a Phase II assessment or remediation may be necessary. Depending on the findings, the deal may no longer be financeable.
4. Business valuation. The SBA requires the business valuation to support the proposed financing. If the valuation comes in below the purchase price, the lender may need to revisit the loan structure or purchase price before moving forward.
5. Equity injection verification. Lenders must verify the source of the buyer's down payment funds and confirm they're unencumbered. Funds generally need to be documented for 60–90 days. Using borrowed funds for the down payment can disqualify a buyer from financing.
How Buyers Can Protect Themselves
Talk to your lender before signing the LOI. Ask what could prevent the acquisition from closing. An experienced lender should be able to identify potential financing challenges based on the business and proposed deal structure.
Negotiate enough time for due diligence. Many LOIs provide 30–45 days for due diligence, which may not be enough to complete underwriting, legal review, QoE, and appraisal requirements. A 60–75 day period gives buyers more room to complete these steps without repeatedly requesting extensions.
Work with a lender experienced in ecommerce acquisitions. A lender that regularly finances Amazon FBA and other online businesses will generally have a better understanding of their operating models and potential underwriting challenges. That experience can help reduce delays and unnecessary conditions.
Review every condition in the commitment letter. Once the lender issues a commitment letter, make sure you understand exactly what still needs to be completed before closing. Assign responsibility for each outstanding item and establish a timeline for getting it done.
The Bottom Line
An SBA term sheet is an important milestone, but it doesn't mean the loan is approved.
There's still underwriting, verification, and due diligence to complete before the lender makes a formal commitment.
Buyers who understand that distinction and prepare for potential issues early are in a much better position to keep their acquisitions moving toward closing.