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Don't Sign That Term Sheet Yet
5 questions that tell you everything about your SBA lender
Shaun Tiwari
February 26, 2026 • Estimated Reading Time: 4 minutes
You found the business. Negotiated the LOI. Started the SBA financing process. A lender sends over a term sheet, and it feels like real progress.
So you sign it. Move forward. Start sending documents, paying for appraisals, ordering environmental reports.
Four months later, the deal falls apart. The lender couldn't get it through credit committee. Or the timeline kept slipping. Or conditions kept getting added that weren't in the original term sheet.
I hear about this happening more often than it should. And almost every time, the borrower could have avoided it by asking the right questions before they signed.
Here are the questions that separate lenders who close deals from lenders who collect documents.
"What's your rate?" is the wrong first question
Every borrower asks about rate. It's natural. But for SBA loans, rate is only part of the picture.
The better questions:
What's the fully loaded cost? SBA guarantee fees alone can add 2-3% to the upfront cost of the loan. Some lenders add packaging fees on top of that. Others don't. Ask for a complete fee breakdown before you compare rates.
Is the rate fixed or variable? If variable, what's the index, and what's the spread? Is there a cap? A floor?
How does the rate compare on the full loan amount? For pari passu structures ($5M+ deals with SBA and conventional tranches), the blended rate across both pieces is what matters, not just the SBA portion.
The lender who quotes you the lowest rate isn't always the cheapest option once you factor in all the fees and terms.
Timeline and close rate: the two numbers that actually matter
Ask the lender directly: how many deals similar to mine have you closed in the last 12 months?
Not "how many have you quoted." Not "how many are in your pipeline." How many have actually closed.
Then ask about their pull-through rate. What percentage of term sheets they issue actually make it to closing? A lender who issues 100 term sheets and closes 40 of them is telling you something very different from a lender who closes 85 out of 100.
On timeline, don't accept "60-90 days." Ask for the milestones:
When will you submit to credit committee?
When should we expect the commitment letter?
What's the appraisal timeline?
When do we get to closing docs?
A lender who can lay out a clear timeline with specific milestones has done this before. A lender who gives you a vague range is guessing.
SBA loans come with a unique fee structure that catches a lot of borrowers off guard. Here's what to ask about:
SBA guarantee fee: This is standard and based on loan size and maturity. But make sure you know the exact amount upfront.
Packaging or origination fees: Some lenders charge 1-2% for "packaging" the SBA application. Others include this in their normal process. This is a significant cost difference on a $3-5M loan.
Legal fees: Who pays for the lender's attorney? Some lenders pass their legal costs to the borrower. Others absorb them. Ask before you're surprised at closing.
Third-party costs: Appraisals, environmental reports, business valuations. Who orders them? Who pays? Can you shop for your own providers, or does the lender require their approved vendors?
Get all of this in writing before you sign the term sheet. Not after.
Collateral and liens: they're taking a PG, but what else?
SBA loans require a full personal guarantee from anyone with 20% or more ownership. That's not negotiable.
But what is worth asking about is what assets the lender will lien beyond the business itself.
Will they take a lien on your primary residence? Some lenders require it if there's a collateral shortfall. Others won't touch your house.
What about other real estate you own? Investment properties, vacation homes, other business properties?
How do they calculate the collateral shortfall? Different lenders value the same assets differently. Understanding their methodology tells you how aggressive they'll be with personal assets.
This is one of the most important conversations to have upfront, because it's one of the hardest things to negotiate once you're deep into the process.
How do they handle curveballs?
Every deal hits a bump. The question is how the lender responds when it happens.
Ask about specific scenarios:
The appraisal comes in lower than expected. Do they restructure, or do they pull the term sheet?
Due diligence turns up something unexpected, maybe a customer contract issue or a financial restatement. Do they work through it, or start looking for the exit?
The closing timeline slips by two weeks because the seller's attorney is slow. Does the lender extend, or does the commitment expire?
They need additional documentation midway through the process. Is that normal fine-tuning, or a sign they didn't ask the right questions upfront?
Lenders who close deals work through problems. Lenders who don't will use any bump as an excuse to back out. You want to know which type you're dealing with before you're four months in.
The Bottom Line
A term sheet is not a commitment. It's an invitation to negotiate.
The lender who can answer all of these questions confidently, with specifics, not generalities, is one who has closed deals like yours before. The lender who dodges, hedges, or says "we'll figure that out later" is one you should think twice about.
Choosing the right lender is one of the most important decisions in the entire acquisition process. Take the time to ask these questions before you sign.
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