What is typically included in loan approval documentation?

Loan approval documentation typically encompasses critical components that define the terms and conditions of a loan, as well as the obligations of both the lender and borrower. The inclusion of a term sheet, loan agreement, and commitment letter is essential because these documents serve distinct but interconnected purposes in the loan approval process.

The term sheet summarizes the key terms of the loan, including the amount, interest rate, repayment schedule, and any covenants. This document lays the groundwork for negotiations and helps ensure that both parties are aligned on the basic parameters before moving forward.

The loan agreement formalizes the terms agreed upon in the term sheet and includes detailed legal language. This binding document outlines the rights and obligations of each party, including the consequences of default and the procedures for dispute resolution. It is a critical component of the loan approval process, ensuring that there is a clear understanding of the loan's mechanics.

Lastly, the commitment letter serves as a formal promise from the lender to provide the loan under specified conditions. It is essentially the lender’s assurance to the borrower that, subject to certain conditions being met, the funds will be available.

While other options may contain relevant information for assessing creditworthiness or business viability, such as credit reports, tax returns, borrower history, and business plans,