Venture debt term sheet explained: What founders should look for before signing

Venture debt 101

Before diving into term sheet details, it helps to understand the fundamentals of how venture debt works in Singapore's ecosystem. If you're new to this funding option, we've covered the basics extensively in our previous articles.

What is venture debt?

Venture debt is a type of debt financing specifically designed for high-growth startups and early-stage businesses that have already raised equity funding. Unlike traditional bank loans that rely heavily on assets and cash flow, venture debt is typically extended based on the strength of your equity investors, growth trajectory, and future success potential.

When Singapore startups use venture debt

Singapore startups typically turn to venture debt in specific scenarios: to extend runway between equity rounds, to fund specific growth initiatives without additional dilution, to finance equipment or inventory purchases, or to provide a financial cushion while achieving key milestones. The timing usually aligns with having raised at least a Series A round and demonstrating clear product-market fit.

The EFS-Venture Debt Landscape in Singapore

Enterprise Singapore's Enterprise Financing Scheme for Venture Debt (EFS-VD) provides government-backed risk-sharing with participating lenders, making venture debt more accessible and affordable for Singapore-based startups.

The scheme can support up to 70% of the loan amount (capped at SGD $5 million), often resulting in lower interest rates and more favourable loan terms compared to non-subsidised options.

Importantly, the EFS-Venture Debt programme has been recently extended and remains a cornerstone of Singapore’s startup financing ecosystem. For many local founders, it continues to be the primary way to access venture debt on more founder-friendly terms, particularly in a higher interest rate environment

Now that we've covered the basics, let's dive into the term sheet itself.

Why venture debt term sheets matter for founders

A venture debt term sheet is more than a formality. It's the blueprint for your financial relationship with a lender. Unlike equity funding, where you give up ownership, venture debt lets you access capital while maintaining control of your business. But that capital comes with strings attached: interest rates, loan fees, covenants, and repayment schedules that can impact your future success.

Understanding your term sheet helps you avoid surprises. A seemingly small clause, like a prepayment fee or investor abandonment clause, can have significant implications for your company's ability to operate flexibly. The more you understand upfront, the better positioned you are to negotiate favourable terms that support your growth rather than constrain it.

For early-stage businesses and startups in Singapore, this is particularly important. Singapore's Enterprise Financing Scheme for Venture Debt (EFS-VD) provides government-backed support, but you still need to understand what you're signing. The loan agreement you enter today as a founder will shape your financial obligations for years to come.

Key components of a typical venture debt term sheet

Every venture debt term sheet follows a similar structure, though specific terms vary by lender. Here's what you need to understand about each section.

1. Deal overview and parties

This section identifies who's involved: your company, the lender (whether traditional bank lenders or specialised venture debt funds), and any guarantors. It also outlines the basic terms: loan amount, tenor (length of the loan), and the type of debt structure.

Pay attention to how your company is described. If there are parent companies, subsidiaries, or special purpose vehicles involved, make sure the structure matches your actual business setup. Any discrepancies here can cause significant legal complications down the line.

2. Loan amount and structure

The loan size is typically expressed as a commitment amount, the maximum you can borrow, and may be structured in tranches. For example, you might have access to SGD $2 million, but only be able to draw SGD $1 million immediately, with the remaining SGD $1 million available after hitting specific milestones like reaching certain revenue targets or closing your next funding round.

Key terms to understand:

• Loan commitment: The total amount the lender agrees to make available to you over the life of the agreement.
  
• Draw period: The specific timeframe during which you can access the committed funds, typically 12–24 months from signing.
  
• Tranche structure: Whether funds are released all at once (single tranche) or in multiple stages tied to performance milestones (multi-tranche).
  

This structure gives lenders some protection, but it also means you need to plan carefully. If your second tranche depends on reaching certain revenue targets, make sure those targets are realistic given your current trajectory. Understanding your cash runway becomes critical when planning around milestone-based drawdowns.

3. Tenor, drawdown, and repayment profile

The tenor is how long you have to repay the loan, typically 24 to 48 months for venture debt. But the repayment structure matters just as much as the length.

Most venture loans include an interest-only period (usually 6–12 months) where you only pay interest on the borrowed amount. After this, principal repayment begins, often through straight-line amortisation, where you repay equal amounts monthly. This structure is specifically designed to give startups breathing room to deploy capital before heavy repayment obligations kick in.

[Table:1]

Understanding your repayment schedule is critical. If you're burning SGD $200,000 monthly and your principal repayment adds another SGD $80,000 to your monthly obligations, you need to ensure your revenue growth can support that additional burden without forcing premature cost-cutting.

4. Pricing: Interest, fees, and total cost

This is where the real cost of venture debt becomes clear. Don't just focus on the interest rate; the total cost includes multiple fees that can significantly increase your actual borrowing expense.

Common fee structures:

• Interest rate: Typically 8-15% annually for Singapore startups, calculated on the outstanding balance.
  
• Origination fees: 1-3% of total loan amount, paid upfront at closing as compensation for processing your application.
  
• Commitment fees: Annual or quarterly fee (0.25-0.5%) for making funds available, even if you haven't drawn them yet.
  
• Prepayment fee: Penalty for paying off the loan early, usually 1-3% of the remaining balance, declining over time.
  
• Closing date fees: Administrative and legal costs for finalising documentation, typically SGD $5,000-15,000.
  

Let's say you're borrowing SGD $1 million at 10% annual interest with a 2% origination fee and 2% prepayment fee. Your actual cost breakdown might look like this:

• Year 1 interest: SGD $100,000
  
• Origination fee: SGD $20,000
  
• If you prepay early: Additional SGD $20,000
  

That's SGD 140,000 in costs, significantly more than the stated 10% interest rate suggests. Always calculate the all-in cost before comparing offers. Many founders overlook these additional fees and are surprised by the true cost of capital.

Moreover, some venture debt term sheets also include Payment-in-Kind (PIK) interest, where a portion of the interest isn't paid in cash but instead capitalised and added to the loan principal.

While PIK interest can reduce short-term cash outflows, it increases the total amount owed over time. Founders should model PIK carefully, as it can materially raise the effective cost of capital despite a seemingly attractive headline interest rate.

5. Security, collateral, and ranking

Most venture debt lenders require security, assets over which they hold a security interest in the event of default. This might include:

• Intellectual property (patents, trademarks, proprietary technology, and other IP assets that form your competitive advantage)
  
• Company's stock (shares in the business itself)
  
• Accounts receivable (money owed to you by customers)
  
• Equipment or inventory (physical assets with resale value)
  

In Singapore, however, many venture debt agreements use a negative pledge over intellectual property rather than a full fixed or floating charge. A negative pledge means you agree not to pledge or encumber your IP to another party, but the lender does not hold an active lien over the IP unless a default occurs. This structure is often more acceptable to Series B and C equity investors, who are typically cautious about investing in companies where core IP is already fully encumbered.

Security ranking also matters. If your venture debt is subordinated to other obligations, those senior creditors are paid first if things go wrong. Because subordinated lenders take on more risk, they usually charge higher interest rates or require additional protections. By contrast, senior secured debt has first claim on assets, while junior or subordinated debt sits lower in the repayment hierarchy.

For early-stage businesses with limited hard assets, lenders tend to focus heavily on intellectual property and the strength of your cap table. As a founder, you should understand exactly what security you're granting and how it may affect future fundraising. Some equity investors are reluctant to invest in companies where core IP is heavily encumbered by debt, making this a critical point to review before signing.

6. Warrants and other equity kickers

Warrant coverage is a unique feature of venture debt. Lenders receive the right (but not obligation) to purchase a company's stock at a predetermined price, usually the price of your most recent equity rounds.

Typical warrant coverage ranges from 5-20% of the loan amount. On an SGD $1 million loan with 10% warrant coverage at SGD $1 per share, the lender gets warrants to buy 100,000 shares at SGD $1 each.

Warrant coverage of 5–20% of the loan amount is considered industry standard across venture debt providers, both in Singapore and globally, with the exact percentage reflecting company stage, risk profile, and lender appetite.

Warrant pricing matters because:

• If your company succeeds and your shares are worth SGD $10, those warrants are worth SGD $900,000.
  
• If your company fails, they're worthless.
  
• Unlike interest payments, warrants only cost you if you succeed.
  

For founders worried about dilution, warrants are generally more favourable than giving up equity directly, but they still represent future ownership you're giving up.

7. Covenants and information undertakings

Covenants are promises you make about how you'll run your business. They come in two types:

Affirmative covenants (things you must do):

• Maintain minimum cash balances
  
• Provide monthly or quarterly financial statements
  
• Keep insurance policies current
  
• Obtain lender approval for major decisions
  

Negative covenants (things you can't do):

• Raise additional debt without approval
  
• Pay dividends
  
• Make acquisitions above a certain size
  
• Change your business model significantly
  

Covenants protect lenders, but overly restrictive ones can limit your flexibility. If you can't hire key team members without lender approval, or can't pivot your product strategy, you're giving up more than just money.

8. Conditions precedent and conditions subsequent

Conditions precedent are requirements you must meet before the loan funds. These typically include:

• Completing legal documentation
  
• Providing corporate resolutions
  
• Showing proof of insurance
  
• Confirming no material adverse change has occurred
  

Conditions subsequent are ongoing obligations after funding. Missing these can trigger default, so take them seriously.

9. Events of default and lender remedies

This section outlines what happens if things go wrong. Common default triggers include:

• Missing interest payments or principal repayment
  
• Breaking covenants
  
• Material adverse change in your business
  
• Investor abandonment (your equity investors stop supporting you)
  

The investor abandonment clause is particularly important in venture debt. If your Series A investors don't participate in your Series B, lenders may consider this a default event. Make sure you understand exactly what triggers this clause.

Investor abandonment is often a hidden tripwire in venture debt agreements. While rarely discussed in high-level guides, it's commonly enforced in practice and deserves careful scrutiny, particularly for startups planning follow-on fundraising.

When default occurs, lenders can:

• Accelerate the loan (demand immediate repayment)
  
• Seize collateral
  
• Take control of bank accounts
  
• Force bankruptcy proceedings
  

Understanding these remedies helps you assess the real risk you're taking on.

Expert note on material adverse change:

In addition, it’s also important to distinguish between the two types of material adverse change clauses:

• Business MAC: Triggered by issues specific to your company, such as severe revenue decline, loss of key customers, or operational failure.
  
• Market MAC: Triggered by external factors like macroeconomic shocks, financial crises, or changes in market conditions unrelated to your company’s performance.
  

Founders should push to limit MAC definitions to Business MACs only. Market MAC clauses give lenders broad discretion to declare default or halt funding during economic downturns, even if your business is performing well.

10. Prepayment, refinancing, and call protection

Can you pay off the loan early? Most venture debt term sheets include prepayment fees, typically 1-3% of the outstanding balance. that decline over time.

Some lenders also include "call protection" periods where you cannot prepay at all, usually for the first 6-12 months. This protects the lender's expected return but limits your flexibility.

If you're planning to raise a large equity round and pay off the debt early, factor prepayment fees into your decision. Sometimes it's cheaper to keep the debt in place.

11. Use of proceeds clause

This clause specifies how you can use the borrowed money. Common acceptable uses include:

• Working capital
  
• Equipment purchases
  
• Marketing and sales expansion
  
• Product development
  

Restrictions often prohibit using funds for:

• Equity buybacks
  
• Dividend payments
  
• Personal expenses
  
• Speculative investments
  

Violating use of proceeds requirements can trigger default, so make sure the permitted uses align with your actual needs.

12. Fees, deposits, exclusivity and term sheet expiry

Beyond the loan fees already mentioned, term sheets often include:

• Deposit requirements (held in escrow until closing date)
  
• Exclusivity periods (you can't negotiate with other lenders for 30-60 days)
  
• Term sheet expiration dates (typically 30-45 days)
  

Exclusivity periods are standard, but limit your negotiating power. Try to keep them as short as possible while still giving the lender a reasonable time for due diligence.

Singapore-specific nuances you should watch for

How EFS-VD terms show up in your term sheet

Singapore's Enterprise Financing Scheme for Venture Debt provides government risk-sharing with participating lenders. If your venture debt is backed by EFS-VD, you'll see specific provisions:

• Maximum loan quantum (typically up to SGD $5 million)
  
• Eligibility criteria referenced in the loan documents
  
• Government guarantee percentages
  
• Compliance reporting requirements
  

EFS-VD backing often results in more favourable terms, lower interest rates and reduced warrant coverage, because the government shares the lender's risk. Make sure you understand both the benefits and the additional compliance requirements.

Regulatory and compliance touchpoints

Singapore has specific regulatory frameworks that affect venture debt:

• MAS (Monetary Authority of Singapore) licensing requirements for lenders.
  
• ACRA (Accounting and Corporate Regulatory Authority) filing obligations.
  
• Cross-border payment regulations if you're using funds internationally.
  
• Tax treatment of interest payments and loan fees.
  

Your loan agreement should clearly address how these regulations apply to your specific situation.

Venture debt term sheet template

While every term sheet is unique, here's a typical structure you'll encounter:

Section 1: Transaction overview

• Borrower name and details
  
• Lender name and details
  
• Loan amount and structure
  
• Purpose of financing
  

Section 2: Financial terms

• Interest rate and calculation method
  
• Origination fees, commitment fees, and other loan fees
  
• Repayment plan including interest only period
  
• Warrant coverage and warrant pricing
  

Section 3: Security and ranking

• Collateral description
  
• Security ranking
  
• Guarantees
  

Section 4: Operational terms

• Covenants (affirmative and negative)
  
• Reporting requirements
  
• Events of default
  
• Material adverse change definition
  

Section 5: Procedural terms

• Conditions precedent
  
• Draw period and drawdown procedures
  
• Prepayment terms
  
• Amendment procedures
  

Section 6: Legal provisions

• Governing law
  
• Dispute resolution
  
• Confidentiality
  
• Term sheet stage vs binding provisions
  

This template provides a framework, but always review the specific language in your term sheet with legal counsel.

How to practically review a venture debt term sheet (Step-by-step)

Reading a term sheet is one thing. Actually evaluating whether it's right for your business is another. Here's a practical process.

Step 1: Map terms to business plan and runway

Start with your financial model. Take your current cash position and projected burn rate, then layer in:

• When you draw the funds.
  
• Interest payments during the interest-only period.
  
• Principal repayment amounts after amortisation begins.
  
• All fees at their expected payment dates.
  

This gives you a realistic picture of how the debt affects your runway. If you have 18 months of runway today, and the debt adds 12 months but requires SGD $80,000 monthly in payments after month 6, your effective extended runway might only be 10 additional months.

Step 2: Rank clauses by impact: Cash, dilution, control, flexibility

Not all terms matter equally. Create a simple framework:

High impact terms:

• Total cost (interest + all fees).
  
• Repayment schedule.
  
• Covenants that affect hiring, spending, or strategic decisions.
  
• Warrant coverage percentage.
  
• Default triggers.
  

Medium impact terms:

• Draw period restrictions.
  
• Reporting frequency.
  
• Prepayment penalties.
  
• Investor abandonment definitions.
  

Lower impact terms:

• Closing date logistics.
  
• Standard representations and warranties.
  
• Minor procedural requirements.
  

Focus your negotiation energy on high-impact terms. Don't waste political capital fighting over minor procedural issues.

Step 3: Identify your negotiation priorities

Based on your impact analysis, determine your 3-5 non-negotiables. For most startups, these often include:

• Manageable repayment schedule that doesn't strain cash flow.
  
• Reasonable covenants that don't prevent normal business operations.
  
• Competitive all-in cost including all fees.
  
• Fair warrant coverage (typically 10-15%).
  
• Realistic material adverse change definitions.
  

Know what you're willing to compromise on. If a lender offers a lower interest rate but wants higher warrant coverage, you need to understand which matters more to your situation.

Step 4: Work with advisors (Lawyers, CFOs, corporate secretaries)

Don't review venture debt terms alone. Build a team:

• Legal counsel: Experienced in venture debt specifically, not just general corporate law. They should review every clause for hidden risks.
  
• CFO or financial advisor: Models the financial impact and helps you understand cash flow implications. Critical for evaluating whether the economics work.
  
• Corporate secretary: Ensures compliance with Singapore regulations and proper documentation of board approvals.
  
• Peer founders: Talk to other startup founders who've raised venture debt from the same lender. They'll share insights you won't find in the term sheet.
  

Budget SGD $10,000-20,000 for quality legal review. It's worth it to avoid an SGD $1 million mistake.

How can businesses compare two term sheets?

When you have multiple offers, create a comparison framework that goes beyond just interest rates:

[Table:2]

This structured approach helps you see the complete picture. Lender B might appear more expensive at first glance, but offer significantly better terms overall.

Consider both quantitative factors (costs, fees, interest rates) and qualitative ones (lender reputation, speed of execution, flexibility during difficult times). The cheapest option isn't always the best.

Key considerations for comparing venture debt lenders and term sheets

Beyond the term sheet itself, evaluate the lender:

• Track record with similar companies: Have they worked with early-stage businesses in your sector? Do they understand your growth trajectory?
  
• Reputation during difficult times: How do they behave when portfolio companies struggle? Some lenders are supportive partners; others aggressively enforce terms at the first sign of trouble.
  
• Speed and certainty of execution: Can they fund quickly when you need it? Do they have a history of pulling term sheets during due diligence?
  
• Value beyond capital: Do they provide introductions to customers, partners, or future investors? Can they support your startup fundraising journey?
  
• Post-close relationship: Who will be your day-to-day contact? Are they responsive and helpful, or difficult to reach?
  

Check references carefully. Talk to at least 3-5 founders who've worked with each lender, and specifically ask about challenges they faced.

Negotiating venture debt term sheets

Everything in a venture debt term sheet is negotiable, but some things more than others. Here's where you typically have leverage:

Highly negotiable:

• Interest rate, especially if you have multiple offers
  
• Warrant coverage percentage
  
• Covenant thresholds and definitions
  
• Repayment schedule flexibility
  
• Reporting frequency
  

Moderately negotiable:

• Origination fees
  
• Prepayment penalties
  
• Draw period conditions
  
• Material adverse change language
  

Rarely negotiable:

• Security requirements (collateral)
  
• Events of default (standard triggers)
  
• Governing law and jurisdiction
  

Use competitive tension. If you have multiple term sheets, share key terms (without violating confidentiality) to encourage better offers. Lenders know founders shop around.

Time your negotiation strategically. Don't negotiate heavily before due diligence; wait until you're close to closing date when the lender has invested time and resources. But don't wait so long that you have no alternatives if negotiations fail.

Red flags and deal-breakers in venture debt term sheets

Some terms should make you pause or walk away entirely. Watch out for red flags keenly:

Cashflow and cost red flags

• Interest rates above 18% (without extraordinary circumstances).
  
• Origination fees above 3%.
  
• Repayment schedules that start before you've had time to deploy capital.
  
• Hidden fees or vague fee structures.
  
• Prepayment penalties above 3% or lasting beyond 18 months.
  

Control and flexibility red flags

• Covenants requiring lender approval for routine business decisions.
  
• Board observation rights that give lenders too much influence.
  
• Restrictions on future equity rounds or M&A options.
  
• Investor abandonment clauses triggered by technical issues.
  
• Vague material adverse change definitions (anything can be interpreted as "material").
  

Legal and structural red flags

• Personal guarantees from founders (extremely rare for VC-backed, but common for SMEs).
  
• Liens on personal assets.
  
• Unlimited liability provisions.
  
• Aggressive acceleration clauses.
  
• Short cure periods for covenant violations (less than 30 days).
  

If you see multiple red flags, be prepared to walk away. Bad venture debt terms can destroy your business faster than no debt at all.

Modelling covenants and monitoring them

Once you sign the loan agreement, you need systems to track compliance.

Building a simple covenant model

Create a spreadsheet that tracks every covenant requirement:

Financial covenants example:

• Minimum cash balance: SGD $500,000 (check weekly).
  
• Maximum burn rate: SGD $200,000/month (check monthly).
  
• Revenue milestones: SGD 1 million ARR by Q2 (check quarterly).
  

Operational covenants example:

• Board meeting attendance (track at each meeting).
  
• Insurance policy renewals (calendar reminder 60 days before expiry).
  
• Financial reporting deadlines (automated reminders 5 days before due).
  

Set alerts for when you're approaching covenant thresholds. Don't wait until you've violated a term to notify your lender; proactive communication often leads to waivers or amendments.

Automating monitoring

Use your financial systems to flag potential issues:

• Connect your accounting software to track cash balances automatically.
  
• Set up burn rate calculations that update daily.
  
• Create dashboards that show your buffer on each financial covenant.
  

The more automated your tracking, the less likely you are to accidentally violate terms due to oversight.

How Aspire complements venture debt in your capital stack

As you scale your business with venture debt, managing the complexity of multiple currencies, international payments, and tight cash flow becomes critical.

We, at Aspire, provide startups, SMEs, and solopreneurs with financial infrastructure built for growth:

• Real-time visibility: Track every dollar across multiple accounts, currencies, and company operations. Critical when you're managing covenant compliance.
  
• Flexible credit: Real-time credit that scales with your business, complementing your venture debt facility with operational financing.
  
• Global payments: Send money across borders in seconds with transparent FX rates, no surprises that might strain your repayment plan.
  
• Automated controls: Set spending limits by team or project, ensuring your use of proceeds aligns with your loan agreement.
  

For founders juggling venture debt obligations, investor reporting, and day-to-day operations, Aspire removes friction so you can focus on growth, not financial admin.

Founder checklist

Before you sign any venture debt term sheet, be sure you pay heed to the following checklist:

• Calculate the all-in cost, including every fee.
  
• Model cash flow impact month-by-month forthe full tenor.
  
• Review all covenants with your team to ensure they're manageable.
  
• Understand every default trigger and how likely each is.
  
• Check warrant coverage percentage and pricing.
  
• Verify prepayment terms and fees.
  
• Confirm draw period conditions match your plans.
  
• Review security and collateral requirements.
  
• Assess the investor abandonment clause carefully.
  
• Have legal counsel review every page of the loan documents.
  
• Talk to 3-5 other founders who've worked with this lender.
  
• Build a covenant tracking system before the closing date.
  
• Understand exactly what triggers material adverse change.
  
• Know your lender contact for post-close questions.
  

Frequently asked questions

What are the five key points of a term sheet?

The five most critical elements of any venture debt term sheet are: (1) Loan amount and structure, how much you can borrow and when; (2) All-in cost including interest rate, origination fees, and other loan fees; (3) Repayment schedule including any interest only period; (4) Covenants and restrictions on how you operate; and (5) Warrant coverage and dilution impact. Understanding these five components gives you 80% of what matters.

Is a venture debt term sheet binding?

No, most venture debt term sheets are non-binding except for specific provisions. Typically, only the exclusivity, confidentiality, and expense reimbursement clauses are legally binding. The actual loan terms don't become binding until you sign the final loan agreement and loan documents after due diligence. However, lenders generally honour term sheets unless they discover material issues during diligence, so treat the term sheet stage seriously even though it's not fully binding.

Typical Singapore venture debt interest rates?

For startups in Singapore, venture debt interest rates typically range from 8-15% annually. Early-stage businesses with strong equity rounds and revenue traction might secure rates at the lower end (8-10%), while pre-revenue companies or those in riskier sectors might pay 12-15%. Companies with EFS-VD support often receive better rates due to government risk-sharing. These rates don't include fees, so always calculate the total cost.

How do warrants actually work?

Warrants give lenders the right (not obligation) to purchase a company's stock at a predetermined price, usually the price of your most recent funding round. If you borrowed SGD $1 million with 10% warrant coverage at SGD $1 per share, the lender gets warrants to buy 100,000 shares at SGD $1. If your shares later trade at SGD $10, those warrants are worth SGD $900,000 to the lender. Warrants only cost you if your company succeeds, making them more founder-friendly than immediate equity dilution. The warrant pricing is typically based on your most recent equity valuation.

How do covenants affect day-to-day operations?

Covenants create boundaries for how you run your business. Financial covenants (like maintaining minimum cash balances) affect your spending decisions; you might delay a hire to stay above the threshold. Operational covenants might require lender approval for major contracts, acquisitions, or additional debt. Negative covenants prevent certain actions entirely, like paying dividends or changing your business model significantly. Well-structured covenants should allow normal operations while protecting the lender from major risks. Poorly structured ones can paralyse decision-making and slow growth.

Do I need to bank with the lender?

Not always, but many venture debt lenders prefer or require you to maintain your primary operating account with them. This gives them visibility into your cash flow and the first right to funds if you default. Some lenders offer better loan terms if you move your banking relationship to them. Others are flexible and only require monthly reporting.