A term loan is a loan that is given for a fixed duration of time and must be repaid in regular installments. The interest rate charged under these loans may be on a fixed or floating basis, which will vary with market fluctuations. Most commonly, term loans are often used as small business loansto finance the purchase of assets needed by the business. Such loans are often secured by the assets they’re used to purchase.
Features of Term Loans
Term loans are Secured Loans. The asset that is purchased using the term loan amount will serve as primary security and other assets of the company will be serving as collateral security.
The loan has to be repaid within the fixed term regardless of the firm’s financial situation.
The maturity of a term loan lies between 5 -10 years. However, the tenure of term loans can be rescheduled to help borrowers deal with financial emergencies.
Since term loans are secured loans, financial institutions ask the borrower not to raise additional loans and to repay the existing loans and maintain a minimum asset base.
As per the terms and conditions laid out by most of the financial institutions,term loans can be converted into equity.
Financial institutions charge a penalty on the defaults.
Commitment fee is imposed on the unutilized loan amount.
The principal loan amount of the term loan is to be repaid after the initial grace period of 1 – 2 years.
Advantages of Term Loans
The term loan is economical for the borrower.
The borrower can avail tax benefits on the interest paid on term loans.
The terms and conditions of term loans are not rigid
Since term loans come with collateral security, providing the loan is not a huge risk to the financial institution.
The term loans represent debt financing. Therefore, the interest of the equity shareholder is not weakened.
Since term loans can be converted to equity, financial institutions can get the right to control the affairs of the business or firm.
With leading Non-Banking Financial companies (NBFCs) like Finserv Markets, you can choose from wide loan options to fulfill your financial requirements. Business loans with Finserv Markets are available at most competitive interest rates and flexible repayment options. Minimal documentation and a hassle-free online application process give Finserv Markets an edge over the other financial institutions in the market. So why wait? Opt for the best business loan for yourself with Finserv Markets, today.
Finserv Markets, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment, and exclusive EMI store, all under one roof- anytime, anywhere!