A commercial mortgage term sheet is a structured financing proposal, not merely an interest rate. Two proposals with similar headline pricing can create different cash requirements, recourse, conditions, reporting duties, prepayment costs and closing risk. The review should convert each term into a dollar, document, deadline, decision or continuing obligation before a purchaser treats financing as solved.
This is general information, not legal, tax, environmental, engineering, accounting or investment advice. Obtain advice specific to the property and transaction.
1. Identify the document's legal status
Confirm whether the document is an expression of interest, indicative term sheet, commitment letter or binding agreement and which provisions—such as fees, confidentiality, exclusivity or costs—are intended to bind.
Legal counsel should review effect, acceptance, expiry, conditions, lender discretion and the relationship to final loan and security documents. A signed term sheet does not automatically mean funds are unconditionally available.
2. Reconcile borrower, guarantor and ownership
Map the property owner, operating company, parent, affiliates, sponsors, beneficial owners, guarantors and signing authority. Ensure the proposed property-holding and operating structure matches the purchase contract, tax planning and lender assumptions.
Do not add or remove an entity after approval without lender and legal review. Ownership or borrower changes can restart underwriting, appraisal, compliance and security work.
3. Define loan amount and purpose
State the maximum principal and whether it finances purchase price, refinance, construction, improvements, equipment, closing costs or another approved use. Identify any holdback, earn-out, future advance or reimbursement mechanism.
Build a complete sources-and-uses schedule showing property price, diligence, legal, appraisal, environmental, renovation, fees, adjustments, GST treatment, working capital, contingency, debt and equity.
4. Separate leverage tests
Document the lender's loan-to-value, loan-to-cost and other advance tests, the valuation basis, eligible cost, exclusions and whether the approved amount is the lowest result across multiple tests.
A stated maximum principal can fall when the appraisal, cost review or lender calculation differs from the purchase price. Keep the financing shortfall visible until final funding conditions are satisfied.
5. Translate rate mechanics
Identify fixed or floating basis, reference rate, spread, floors, resets, conversion rights, interest calculation, compounding, default pricing and hedging requirements. A spread is not the all-in rate when the reference, floor or fees differ.
Model more than one rate case and preserve the lender's exact definitions. Commercially's calculator is a scenario tool, not a quotation or prediction.
6. Distinguish term from amortization
The contractual loan term determines maturity; amortization determines the payment schedule. A longer amortization can lower scheduled payments while leaving a larger balance due at maturity.
Model payment, balloon balance, renewal risk and the business or property's ability to refinance if value, income or credit conditions change.
7. Itemize every fee and cost
Capture application, commitment, lender legal, borrower legal, appraisal, environmental, quantity surveyor, inspection, administration, annual review, renewal, amendment, standby, unused facility, discharge and broker or advisor costs where applicable.
State when each amount is earned, payable, refundable or credited and what happens if the purchase does not close. Headline rate comparison without fees can misstate the financing choice.
8. Understand recourse and guarantees
Identify full, limited or non-recourse language, guarantees, indemnities, environmental obligations and any carve-outs. Document amount, duration, burn-off tests, release events and continuing liability.
Counsel should explain enforcement and interaction among the mortgage, guarantees, general security, assignments and indemnities. A label such as limited recourse is not enough without the actual document mechanics.
9. Map the complete security package
Security may include a mortgage, assignment of rents and leases, general security, share pledge, bank-account control, insurance assignment, postponements, guarantees and other registrations.
Review existing debt, title priority, intercreditor needs, permitted liens and discharge timing early. A lender's required first-ranking position can affect vendor financing or other capital.
10. Rebuild income and coverage tests
Record the lender's net operating income, EBITDA, debt service, DSCR, debt-yield, occupancy and stabilization definitions. Identify exclusions, reserves, management, vacancy, owner compensation and normalization.
Calculate using lender definitions and reconcile to source financial records. A brokerage NOI or calculator result does not bind the lender.
11. Review covenants and reporting
List continuing financial ratios, net-worth or liquidity tests, distributions, additional debt, leasing controls, capital expenditure, insurance, environmental, tax and reporting obligations.
Assign each covenant to an internal owner, data source, calculation date and cure or notice process. A loan that closes but cannot be administered reliably creates avoidable default risk.
12. Schedule conditions precedent
Turn every condition into a deliverable, responsible party, reviewer and deadline: appraisal, environmental, building condition, title, survey, zoning, permits, leases, estoppels, insurance, corporate records, financial statements, equity, legal opinions and closing documents.
Confirm whether the lender must approve report providers and reliance. BDC specifically warns buyers to involve financing before waiving due-diligence conditions.
13. Compare prepayment and exit
Review open or closed periods, privileges, notice, yield maintenance, interest differential, breakage, assignment, assumption, sale, refinancing and discharge charges.
Model the intended hold period and plausible early-exit events. A lower initial rate can be more expensive when the property is sold, refinanced or restructured before maturity.
14. Control expiry, closing and funding
Record term-sheet expiry, commitment expiry, appraisal validity, rate hold, documentation deadline, conditions, funding mechanics and outside date. Align them with the purchase agreement and required extensions.
Commercially can coordinate property facts and the transaction timetable. The lender and licensed mortgage professionals control financing; counsel controls legal effect and security; accountants, appraisers and technical professionals control their work. This guide is not a term sheet, financing advice or approval.
Primary sources
Verify the current rules.
Government and regulator pages can change. These links were reviewed on August 26, 2026.
BDC: Commercial real estate acquisition planning↗BDC: Negotiating a commercial real estate purchase↗BDC: Commercial real estate toolkit↗RECA ProCheck: Verify a licensed mortgage professional↗Alberta: Find land titles, documents or plans↗Alberta: Environmental Site Assessment Repository↗A real property decision?
Share the target property, business or investment plan, capital range and timing. Commercially can coordinate the property work while your lender controls credit.Who, how and why
Who: Commercially Research & Editorial.
How: Primary-source research and AI-assisted drafting were used to organize this guide around a practical commercial real estate decision. Source links, factual claims and material limitations were checked against Commercially's editorial standards on the review date.
Why: To help owners, buyers and tenants identify the records, questions and professional advice that belong in a real transaction work plan.
Editorial owner: Commercially Research & Editorial.
Commercial review: Slav Loban, Commercial Real Estate Division Leader.
Questions or corrections: hello@commercially.ca
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