INteractive term sheet

Explore each venture debt term, understand the implications, and identify where structure, cost, and flexibility are driven within your facility.

MIGHTY TOOLS Understand what you’re signing

This tool breaks down each component of a typical venture debt term sheet and explains what it means in practice.

Expand each section to see plain language definitions, how different terms impact cost and flexibility, and where to focus your attention. You’ll also find practical tips on what to question, where terms are negotiable, and how to avoid common pitfalls.

Annotated Term Sheet — Mighty Partners

Click any clause to see what it means in plain English and what to watch out for before you sign.

Negotiate Watch closely Standard

01Facility structure

Loan amountA$1,000,000 senior secured term loan, advanced in a single tranche on the Settlement Date. Watch

What it means

You receive the full amount on a single date. Simple and clean — no staged conditions attached to this version. The loan sits at the top of your capital structure as a first-ranking obligation, meaning it is repaid before unsecured creditors and equity holders in a wind-down.

Watch for Some term sheets structure facilities across multiple tranches, with later tranches subject to milestone conditions. If those conditions are defined vaguely — for example, "to the lender's satisfaction" — that is discretionary power in the lender's hands. Push for objective, measurable milestones with clear timelines.

PurposeGeneral working capital and growth initiatives of the Borrower. Negotiate

What it means

You can use funds broadly for operations and growth. No lender approval gate in this version — which is what you want.

Negotiation Some term sheets include "as approved by the Lender from time to time," which creates an ongoing approval requirement on how you spend. Push to remove this language wherever it appears. Replace with broad permitted purpose wording: "general corporate purposes, working capital and growth initiatives." Flexibility here matters more than most founders realise.

Repayment termsMonths 1–12: interest-only payments. Months 13–24: principal and interest payments, amortised to zero by end of term. Monthly payments via direct debit on the 1st of each calendar month. Standard

What it means

You pay interest only for the first 12 months — lower cash outflow while you deploy the capital. Principal repayments begin in month 13 on a straight-line amortisation schedule over the remaining 12 months.

Model this carefully The step-up in monthly outflow at month 13 is significant. Interest-only periods compress the amortising window, so the principal and interest payments in the back half are higher than most founders expect. Build a month-by-month cash model that shows your cash balance, revenue, burn, and debt service side by side. If your growth is back-loaded, negotiate a longer IO period — up to 18 months is achievable with strong metrics.

Early repaymentThe Borrower may prepay the loan. The prepayment sum equals outstanding principal plus interest equivalent to 12 months, less any interest already paid. Watch

What it means

You can exit the loan early, but there is a minimum interest cost — the lender recovers the equivalent of 12 months' interest regardless of when you repay. If you repay in month 6, you still owe 6 months' worth of interest on top.

Watch for Early repayment fees vary significantly between lenders. Understand the true cost of early exit before signing — especially if you are expecting an equity raise or exit event that might trigger repayment. This clause is sometimes negotiable: you can push for a shorter minimum interest period (e.g. 6 months) or a declining fee structure.

02Pricing

Interest rate16.0% p.a. effective annual rate (equivalent to 12.4% simple interest rate), paid monthly in arrears as part of the Monthly Repayment. Negotiate

What it means

The effective rate (16.0% p.a.) accounts for the compounding effect of monthly payments. The simple rate (12.4%) is the flat rate applied to the outstanding balance. Both figures are disclosed here, which is good practice — some term sheets only show one, which can obscure the true cost.

Watch for Always confirm which rate is used as the basis for your monthly payment, and check whether interest accrues on the original principal or the declining balance. If it is calculated on the original principal, the effective cost is meaningfully higher. Also confirm: simple or compound interest? On longer terms, this difference is material.

Negotiation Rate is negotiable based on ARR quality, investor backing, and whether you are running a competitive process. If you have two term sheets, use them. A 1% reduction in rate on a $1m facility over 24 months saves approximately $15k in total interest — worth modelling before accepting.

Establishment fee2.0% of the Loan Amount (incl. GST), payable on settlement. Negotiate

What it means

On a $1m facility, this is $20,000 deducted upfront — your effective day-one cash receipt is $980,000. Budget for this in your funding model.

Negotiation Establishment fees are sometimes negotiable, particularly for repeat borrowers or high-quality credits. A higher upfront fee is sometimes offered alongside a lower interest rate — always model the effective APR to compare term sheets on an apples-to-apples basis, not just the headline rate. The comparison you should run: total cost of debt (interest + fees) against the dilution cost of the equity you would otherwise raise at your current valuation.

WarrantsThe Borrower grants the Lender warrants over shares with an agreed current value, exercisable at a discount to the price per share at the next qualifying financing event. Negotiate

What it means

A warrant is the right — but not the obligation — to purchase equity in your company at a fixed price (the exercise price) at a future point. The lender pays nothing upfront; they hold the option to buy shares, or receive a cash equivalent, when a trigger event occurs — typically an IPO, trade sale, qualifying equity raise, or winding up. The exercise window is typically long.

The dilution impact Warrants create dilution, but usually modestly. The quantum is typically expressed as a dollar value of shares — so the dilution impact depends on your valuation at the time of exercise. The lender may also hold a right of first refusal to participate in future equity raises on a pro-rata basis.

Negotiation The key variables are: the exercise price discount (a smaller discount is better for you), whether the lender can take cash in lieu of shares at exercise, and the length of the exercise window. Some lenders offer warrant-free facilities in exchange for a higher interest rate — always model both options to compare the true cost.

03Example covenants

Minimum ARRThe Borrower shall maintain Annualised Recurring Revenue of not less than 3.5x total exposure at all times (e.g. $1m loan = minimum $3.5m ARR). Negotiate

What it means

Your ARR must stay above a floor set as a multiple of your outstanding loan balance. As you repay principal, the ARR floor falls in proportion — so the covenant loosens over time. A miss triggers a cure period; it is not immediate default. But repeated or uncured breach escalates.

The definition is everything What counts as ARR in this covenant? Does it include professional services revenue? How is churn timing treated — on notice or on cancellation? Is it contracted value or recognised revenue? Negotiate the definition before you negotiate the multiple. Push for headroom below your forecast case — not your upside case — and make sure your internal ARR calculation matches what the lender will test.

Minimum runwayThe Borrower shall maintain a minimum of 6 months runway at all times, based on the last 6 months average burn, including committed capital. Watch

What it means

Your cash position — including any committed but undrawn capital — must always cover at least 6 months of your trailing average monthly burn. Tested monthly.

Watch for "Committed capital" needs a precise definition. Does it include undrawn portions of this facility? Conditional equity commitments? Confirm exactly what counts before signing. Also model this across different burn scenarios — aggressive hiring in month 3 can change your trailing 6-month average quickly enough to create a breach risk later.

Practical note Covenants are designed to trigger an early conversation before you are in crisis — not to catch you out. The single best move if you are heading toward a breach is to call your lender before it happens. Proactive transparency creates room for negotiation. Silence removes it.

04Security

SecurityFirst-ranking registered security over all present and future assets of the Obligors, registered on the PPSR. Mighty Partners will rank ahead of all existing PPSR holders post-signing. Standard

What it means

The lender takes a first-ranking General Security Agreement (GSA) over everything the company owns or will own — IP, receivables, equipment, bank accounts — registered on the Personal Property Securities Register (PPSR), publicly searchable. If you default, they can enforce against these assets. The subordination clause means any existing creditors are pushed behind the lender in the repayment queue.

Practical note Standard for senior secured venture debt. Ensure all entities that hold material assets — IP holding companies, operating subsidiaries — are captured in the security package. Gaps in coverage can delay drawdowns. Check that security assignment does not breach customer contracts that restrict IP assignment — common in enterprise SaaS agreements.

Personal / director guaranteesNot applicable. Standard

What it means

No personal guarantee is required here. This is a meaningful distinction from banks and many non-bank lenders, which often require founders to personally guarantee repayment — putting personal assets at risk if the company cannot pay.

Why this matters Personal guarantees are one of the most significant terms in any term sheet. If a lender requires one: negotiate a cap on the guaranteed amount, a time limit (falls away after 12–18 months of no covenant breach), and a release mechanism on exit or refinancing. Most specialist growth credit lenders do not require personal guarantees for institutionally-backed companies with strong assets. If it appears on a term sheet you are reviewing, ensure you fully understand what you are agreeing to and are genuinely comfortable with the extent of your personal liability before signing.

SubordinationAll existing loans and financial indebtedness of the Obligors are to be fully subordinated to this facility. Existing debt holders must sign a subordination and/or priority deed acceptable to the Lender. Watch

What it means

If you have existing debt — director loans, convertible notes, other credit facilities — those creditors must formally agree to rank behind this lender. This is a legal step that requires their cooperation and documentation before settlement can occur.

Watch for If you have existing lenders or noteholders, this process takes time and requires their consent — it is not automatic. Factor this into your settlement timeline. If any existing creditor refuses to subordinate, it can block or delay the facility. Flag all existing debt to your lender early in the process — undisclosed obligations discovered during due diligence are a red flag and slow everything down.

This tool is educational and does not constitute legal or financial advice. Always seek independent legal and financial advice before signing a term sheet. © Mighty Partners 2026.