A term loan is a type of credit offered by financial institutions with a fixed repayment schedule and has a fixed or floating rate of interest.
This credit option aids companies to manage their capital expenditure or expansion. Moreover, this loan also helps them in tackling any sudden financial emergencies.
A business loan is one of the prominent examples of unsecured term loans that offers a wide range of benefits to its borrowers.
Types of term loans
Financial institutions offer various terms loans to fulfil a borrower’s requirement.
Broadly, they are divided into three categories based on the repayment tenor, they are –
1) Short-term loans
Terms loans with a repayment tenor of 12-18 months are considered as short-term loans. The primary purpose of availing this credit is to fulfil immediate financial requirements.
Moreover, such loans involve a small to medium size funding, which can be repaid within a short period. However, specific lenders consider credits of up to 60 months as a short-term loan.
2) Intermediate-term loans
Any term loan that includes a repayment tenor of 36-50 months qualifies as an intermediate-term loan. These credits are predominantly available for significant investments like purchasing machinery, land and building, boosting working capital, etc. Therefore, the loan amount here is substantial.
3) Long-term loans
Long-term loans have a repayment tenor from 5 years to up to 20 years. Typically, such borrowings are availed to fulfil a company’s lump-sum financial requirement. For instance, a company wants to build a new manufacturing unit, which will require a big-ticket investment. Unlike the above two, long-term loans are typically secured in nature.
Things to know about term loans
I. Loan repayment tenor
The repayment period and the number of EMIs that one needs to bear to settle the dues from a loan is the first characteristic that one should know about. Since term loans always have a fixed term, borrowers need to follow a strict amortisation schedule set by lending institutions.
II. Loan amount depends on a project’s viability
Before an individual can avail a term loan, NBFCs may undertake a thorough inspection of his/her business plans. Doing so helps financial institutions gauge long-term economic viability for the said plan. Such inspections are especially important for lenders, where an unsecured term loan is involved.
Through a feasibility study, NBFCs can predict the risk associated with a particular loan applicant. In the case of lower risk, an applicant may receive higher loan amounts under favourable terms. Such terms can include a lower interest rate or eligibility to borrow increased loan quantum. employees monitoring software
III. Collateral is not required
Terms loans like business loans are unsecured. It means they do not require mortgaging any collateral to avail credit. However, it entirely depends on the loan amount and borrower’s repayment capacity. Moreover, borrowers have the choice to opt for either a secured loan or an unsecured loan.
IV. Type of interest rate
Lastly, term loans are available at both fixed and floating interest rate. Borrowers have the choice to opt for either of them.
Business loans are a subtype of term loans, and financial companies like Bajaj Finserv offer such credits at attractive interest rates and favourable terms. Upon fulfilling the eligibility criteria, individuals can borrow up to Rs.30 lakhs.
Furthermore, the company also provides pre-approved offers to its existing customers to streamline and accelerate the loan application process. These offers are available on financial products like business loans, personal loans, etc. Borrowers can check their pre-approved offers by submitting their essential contact details.
Terms loans like business loans are equipped with customer-friendly features like no end-use restrictions and easy accessibility. Before availing, applicants must be aware of the terms and conditions before they apply for a business loan.