Soon:
You are interested in knowing the investor’s conditions for a loan. Why they can’t give you details, just general guidelines for interest rates, time period and conditions or other ‘terms’. It’s all about your perception of risk.
You are interested in obtaining the commitment of an investor so that you can create the great business you have dreamed of. Often the first thing entrepreneurs want to know is the ‘terms’ of the investor’s commitment: What interest rate will they charge? How many years to repay the loan?; and Can I have an interest free period up front so that I can take the pressure off my business cash flow?
Many entrepreneurs fall into this trap and become frustrated when they can’t get an investor to commit. What is this frustration about? Genuine investors cannot legally commit to the ‘Terms’, because that is only possible after their due diligence.
Worse yet, they can be fooled by unscrupulous people who offer them a ‘Term Sheet’ very early in the process. The ‘Term Sheet’ can be the ‘bait’ used to trap the inexperienced entrepreneur into committing to a scam posing as an investor. Do not fall in the trap!
However, genuine investors may give you a letter of intent. That has many legal clauses that give the investor a way out of the commitment. The true investor MUST protect themselves with due diligence. This leads to the investor’s risk assessment. The risk assessment dictates the terms that can be offered to you. The reason is that when it comes to investing, it is universally stated that “return follows risk.” Which means that the higher the rate of return [interest] the greater the investment risk.
When you seek to borrow someone else’s money to build your business, you are inviting the lender or investor to label your business as a “risk” because the interest rate and terms they want in exchange for letting you use their money relate to your perception of risk in placing your hard-earned money in your venture.
Like it or not, when you ask someone to invest in your great business, you are inviting them to judge you and your business. This is unavoidable. The investor cannot assess the risk posed by his business until he has completed his due diligence. This critical judgment cannot be made a moment before. The reason is that the purpose of due diligence is to discover all the risks and proof of risk protection that has been built into the company.
Be patient. An international investor can probably provide you with some guidance on the terms, but not a ‘term sheet’ until after you have discovered the risk, after your plans and arrangements for the business have been scrutinized with due diligence.