™
How to read a business
loan term sheet.
A term sheet sets out the key terms of a credit offer before you sign. Five things matter most: the total cost in pounds, the repayment shape, whether there is security, whether there is a personal guarantee, and whether there are conditions that restrict what the company can do. This guide covers each one.
Key terms you will find on a term sheet
- Principal
- The amount borrowed. Not the amount repaid — that is the principal plus interest and fees.
- Interest rate / daily rate / monthly rate
- The cost of borrowing expressed as a rate. A daily rate of 0.05% on £50,000 = £25/day. Multiply by the number of days to get the actual interest cost.
- APR (annual percentage rate)
- The annualised cost including fees. Useful for year-long products; can appear inflated for short-term products even when the actual cost is modest.
- Cost cap
- The maximum total cost as a percentage of the principal. A 100% cap means you can never pay more than double the amount borrowed in total charges.
- Early repayment charge (ERC)
- A fee for repaying before the end of term. Credicorp products have no ERC — you pay only for the days you borrow.
- Security / debenture
- If present, the lender is taking a charge over company assets. Credicorp products are unsecured.
- Personal guarantee
- A personal commitment from the director to repay the company’s debt. Credicorp products carry no personal guarantee.
- Covenant
- An ongoing obligation during the loan term. May restrict further borrowing, require minimum balances, or require regular reporting.
Five things to check before accepting a credit offer
- What is the total cost in pounds? Not the rate — the pounds. Add up the interest over the full term plus any fees. This is the real cost of the facility. Compare products on this figure, not on APR alone.
- How is the loan repaid? Regular payments, a bullet repayment, or on demand? For a revolving facility, when and how is interest charged? Map the repayment obligation against the company’s expected cash flow.
- Is there any security or personal guarantee? “Debenture”, “fixed charge”, “personal guarantee” — any of these change the risk profile significantly. Understand what you are putting on the line before signing.
- Can you repay early, and is there a cost? An early repayment charge locks the cost in even if the company no longer needs the facility. Knowing this in advance affects the flexibility of the arrangement.
- Are there conditions or covenants? Pre-drawdown conditions delay access to the money. Ongoing covenants restrict what the business can do. Read these carefully — they outlast the signing moment.
Term sheet questions
What is a term sheet?
A term sheet (also called a credit offer, letter of offer, or indicative terms) is a document from a lender that sets out the key terms of a proposed lending facility before the full agreement is signed. It summarises principal, interest rate, fee structure, repayment terms, security requirements, and any conditions. It may be binding or non-binding — check whether accepting it creates a contractual obligation.
What is an early repayment charge (ERC)?
An ERC is a fee for repaying a loan before the agreed end of the term. It compensates the lender for lost interest income. Not all products have an ERC. Credicorp products allow early repayment — you only pay interest for the days you have actually borrowed. There is no ERC penalty for paying off early. Check the term sheet carefully: "early repayment charge" or "redemption fee" means there is a cost to repaying early.
What does APR or annual percentage rate mean on a term sheet?
APR is the annualised cost of credit expressed as a percentage, including interest and fees. It is designed to allow comparison across products over one year. For short-term business lending measured in weeks or months, APR can appear very high — a product with a daily rate and no long holding period will have a high APR even if the actual total cost is modest. The total cost in pounds over the borrowing period is a more useful comparison for short-term products.
What are covenants in a business loan?
Covenants are conditions a borrower must comply with during the term of the loan. They fall into two types: positive covenants (things you must do — maintain certain account balances, provide information, keep insurance current) and negative covenants (things you must not do — take on additional debt above a certain level, dispose of key assets). Breaching a covenant may trigger early repayment or other remedies. Short-term unsecured products like Credicorp's typically have minimal or no covenants.
What should I check most carefully on a term sheet?
Five areas to read carefully: (1) Is there any security — fixed charge, floating charge, debenture? (2) Is there a personal guarantee from the director? (3) Is there an early repayment charge? (4) What is the total cost in pounds, not just the rate? (5) Are there covenants that restrict what the business can do? These are the most impactful terms beyond the headline rate and amount.
Ready to apply?
Credicorp offers are clear: total cost shown in pounds, no security, no personal guarantee, no ERC.