A Founder’s Guide to Indian Debt Financing Term Sheets

Debt can extend runway without dilution, but for many Indian founders, the term sheet is where things go wrong. Over-covenants, hidden fees, complex RCF or warrant structures, slow bank timelines, and heavy collateral demands often surface when it’s already too late to walk away.

A debt financing term sheet can significantly impact how smoothly your startup grows over the next 12–36 months, especially for Indian founders using debt to extend runway instead of raising equity.

If you run a SaaS, D2C, or tech-enabled business with ₹5–50 Cr in revenue and are evaluating ₹1–10 Cr in non-dilutive capital, understanding term sheets is essential to protecting your cap table and cash flows.

Key Takeaways

• A debt financing term sheet is a preliminary, mostly non-binding document outlining how a lender will finance a business.
• It captures key deal points, loan size, interest rates, repayment terms, security/collateral, covenants, and closing conditions.
• In venture debt, term sheets often include features like interest-only periods, warrants, and default triggers.
• The term sheet drives negotiation and later legal docs; it can significantly impact your cost of capital and financial flexibility.
• Comparing multiple offers can help secure better terms, something platforms like Recur Club help businesses do efficiently.

What Is a Debt Financing Term Sheet?

A debt financing term sheet is a written outline of the principal terms and conditions under which a lender agrees to provide a loan to a business. It is typically non-binding, meaning it reflects the parties’ intentions, not a legally binding commitment, although specific clauses such as confidentiality or exclusivity may be binding.

In other words, the term sheet acts as a roadmap for definitive loan agreements, guiding lawyers and finance teams when drafting detailed documentation. It clarifies the deal structure early and prevents surprises in later negotiations.

Also Read: Guide to Understanding Debt Financing for Startups

Why Term Sheets Matter

Before legal documentation, the term sheet is where lenders and borrowers align on financing fundamentals. It sets expectations around pricing, risk sharing, repayment obligations, and borrower responsibilities. A clear, negotiable term sheet makes the ensuing legal process faster and less costly.

It also helps compare competing offers. Different lenders may propose the same loan amount but with materially different pricing, covenants, or repayment flexibility. Reviewing multiple term sheets gives you leverage and insight into which provider is best suited for your growth strategy.

Also Read: Business Loan Document Checklist for Venture Debt

Sample Debt Financing Term Sheet Structure (India)

Use this table as a benchmark when reviewing debt financing term sheets from Indian lenders for startups and SMEs. It highlights standard terms and common red flags to negotiate, based on typical venture debt and working capital structures.

Core Components of a Debt Financing Term Sheet

Although specific sections depend on the type of debt (venture debt, working capital, term loan), term sheets generally cover the following:

1. Loan Amount & Purpose

The total amount the lender commits to provide and the intended use (e.g., expansion, inventory, equipment, runway extension).

2. Interest Rate & Fees

• Interest Rate: The cost of borrowing, expressed in an annualised percentage.
• Fees: Origination fees, commitment fees, legal expense reimbursement, and prepayment penalties (if any).

3. Repayment Structure

This outlines how and when repayments are due:

• Interest-only periods (common in venture debt).
• Amortisation schedule.
• Bullet repayment (principal due at maturity).

4. Security/Collateral

What assets (if any) secure the loan and the priority ranking of the lender’s claim?

5. Covenants

Affirmative (what the borrower must do) and negative (what the borrower cannot do) covenants to manage lender risk.

6. Warrants or Equity Kickers (in Venture Debt)

Some term sheets include warrants, options for the lender to acquire equity at a fixed price later, as compensation for risk.

7. Events of Default

Triggers (like missing payments or violating covenants) that give the lender remedies, including accelerated repayment.

8. Conditions Precedent & Closing Steps

Requirements (such as due diligence results or financial deliverables) that must be met before funds are disbursed.

How to Review Term Sheets: Quick Steps

Follow these 7 prioritized steps to evaluate any debt term sheet for your startup and spot the best deal fast, without missing risks. ​

1. Check Loan Size & Use

Confirm the amount fits a 12–18 month runway or GTM plan. Reject equity-tied sizing; ensure acceleration focus (no co-invest needed).​

2. Verify Pricing & Repayment

Target 12–16% rate + 12-month interest-only. Amortization should ramp post-IO; PIK OK for cash preservation.​

3. Scan Fees & Early Exit

Cap origination at 1–3%; demand step-down prepay (3%→0% over time). Avoid flat penalties post-Year 1.​

4. Assess Equity Components

Limit warrants to 10–30% coverage on preferred stock. Skip if pure debt; negotiate low impact.​

5. Test Covenant Limits

Ensure financial tests (3x liquidity) match forecasts with buffers. Negative covenants are standard but flexible.​

6. Confirm Collateral Rules

Prefer unsecured or simple ROC charge. No personal guarantees; verify lender priority.​

7. Review Close Requirements

Standard KYC/board approvals only. Timeline <30 days; Recur delivers in 48 hours post-data.​Ready to compare multiple debt term sheets?

At Recur Club, founders get curated term sheets from 500+ lenders in 48 hours, with a dedicated capital expert to explain terms and help you negotiate better. Book a call with a Recur Club expert.

How to Compare Term Sheets Effectively

Comparing term sheets is often more than checking rates; it’s about understanding trade-offs:

• Total cost of capital (interest + fees)
• Flexibility in repayment
• Covenant requirements
• Collateral needs
• Speed to disbursement

Getting multiple term sheets from different lenders lets you benchmark offers and choose the one that better matches your business’s cash-flow profile and growth plans. This is especially helpful when timing matters, such as extending the runway or funding expansion.

This is where platforms like Recur Club add value: by connecting businesses with multiple institutional lenders and term sheet options, you can compare, negotiate, and choose with more confidence without approaching each lender separately.

Founder’s Checklist Before Signing Term Sheets

Use this 5-point checklist to sanity-check any debt term sheet for your Indian startup. Tick every box before committing to protect cash flow and flexibility.

Interest, fees & true cost clear?

Validate the all-in cost (APR), including processing fees, prepayment charges, and penalties. Benchmark against at least 2–3 comparable debt offers—small clauses can materially change outcomes.

Are covenants realistic for your business?

Ensure covenants account for Indian operating realities like seasonality and uneven collections. Prefer quarterly tests; avoid tight monthly ARR or DSCR triggers.

No personal guarantee or heavy collateral?

Founder-friendly debt should avoid personal guarantees. Unsecured structures or a simple ROC charge are preferable.

Repayment aligned to cash flow?

Look for interest-only periods and amortisation schedules that extend runway and match your revenue trajectory, not aggressive early repayments.

Independently stress-tested?

Before signing, have the term sheet benchmarked and pressure-tested by someone who sees multiple lender structures. Recur Club helps founders compare offers across lenders and flag restrictive clauses that limit future fundraising or cash-flow flexibility.

Conclusion

Understanding debt term sheets gives Indian founders the ability to raise ₹1–10 Cr in non-dilutive capital on terms that genuinely support growth, extending runway, funding GTM plans, and avoiding unnecessary equity dilution or prolonged bank processes. With the right checklists, awareness of common red flags, and access to comparable lender terms, founders can negotiate meaningfully better outcomes, especially during critical SaaS or D2C scale-up phases.

Rather than navigating lenders one at a time, Recur Club helps founders access multiple debt options simultaneously. Founders receive comparable term sheets quickly, along with support to evaluate covenants, pricing, and structures, so decisions are made with clarity and confidence.

Explore your options. Book a Recur Club expert call.

FAQs

1. What are typical interest rates on Indian startup debt term sheets?

12–16% p.a. for ₹1–10 Cr unsecured term loans; higher (14–18%) for revenue-based financing. Always calculate all-in APR with fees.​

2. How fast can Recur Club deliver term sheets?

Within 48 hours of uploading financials, upload once, get multiple curated offers from 500+ lenders, and no repetitive paperwork.​

3. What happens after signing the term sheet?

Legal teams draft definitive agreements (credit agreement, security docs). Expect KYC, board approvals, ROC filings; closes in 7–30 days with organized data.​

4. Can startups get fully unsecured debt term sheets in India?

Yes, especially with platforms like Recur Club for revenue-proven SaaS/D2C (₹5 Cr+ ARR), no personal guarantees, just business asset charges if needed.​

5. How does Recur Club help negotiate better term sheets?

Dedicated experts benchmark your offers, push for longer IO periods, looser covenants, and step-down prepays, leveraging 500+ lender data for 20–30% better economics.