Most buyers celebrate when they receive an SBA 7(a) term sheet. It feels like the finish line is in sight. It isn't.
The term sheet is an expression of interest — not a commitment. The lender is telling you they think they can do this deal, subject to underwriting, appraisal, environmental review, and a dozen other conditions. Until you have a commitment letter in hand, nothing is certain.
What the Term Sheet Actually Says
Read the fine print on any SBA term sheet and you'll find language like:
"This letter is not a commitment to lend and is subject to satisfactory completion of due diligence, credit approval, and appraisal."
That clause is doing a lot of work. It means the lender can reprice the deal, add conditions, or decline entirely after you've spent $10,000–$30,000 on QoE reports, legal fees, and environmental studies.
The Five Things That Change Between Term Sheet and Commitment
1. The appraised value. If the business appraises below the purchase price, your loan-to-value shifts. The lender may reduce the loan amount, require more equity injection, or require seller debt to fill the gap.
2. Tax return verification. Lenders send tax transcripts directly to the IRS. If the returns you provided don't match IRS records exactly — even a small discrepancy — you're back to square one.
3. Environmental clearance. Any real estate component triggers Phase I environmental. If contamination is found, you're looking at a Phase II, remediation, or a dead deal.
4. Business valuation vs. purchase price. The SBA requires the business value to support the loan amount. If the valuation comes in low, expect a repricing conversation.
5. Equity injection sourcing. The lender will verify that your down payment funds are seasoned (typically 60–90 days in your account) and unencumbered. Borrowed down payments are a disqualifier.
How to Protect Yourself
Get a pre-commitment call. Before signing the LOI, ask your lender directly: "What conditions could cause this deal not to close?" A good lender will walk you through the risk factors specific to this business.
Negotiate a longer due diligence period. Many LOIs default to 30–45 days. That's not enough time to complete lender underwriting, QoE, legal, and appraisal. Push for 60–75 days.
Use a lender familiar with ecommerce. A traditional community bank underwriting its first Amazon FBA deal will take twice as long and create twice as many conditions as one that's closed 50 of them.
Understand the commitment letter conditions. When the commitment letter arrives, read every condition precedent. Each one is a task that must be completed before closing. Know who owns each task and what the timeline is.
The Bottom Line
The term sheet tells you a lender is interested. The commitment letter tells you a lender is in. Treat everything between those two documents as work in progress, not done deals.