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Term Loan

Term loan can be defined as the monetary loan from a bank for a fixed amount that comes with a floating rate of interest and particular repayment schedule. Mostly, the term loan matures between 5 to 10 years. Term loan is mainly used to expand, diversify and modernize the projects. If an individual is getting term loan, he/she needs to consider whether the interest rate is fixed or floating.
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If there is a fixed rate of interest, the percentage of interest will never increase while the floating rate of interest will fluctuate with the market.

Requirements for Term Loan


Advantages for Borrowers

Loan comes with a number of advantages both from the borrower’s as well as transferor’s point of view. From the borrower’s point of view, term loan is the cheap and best option available for medium-term financing. The borrower also enjoys tax benefit on interest as interest payable on term loan is a tax deductible expenditure. Apart from this, term loans are quite flexible as there is a scope of negotiation between the lenders and borrowers.

Advantages for Lenders

From the lender’s point of view, Loans are equally advantageous as the loans are given by financial institutions and banks against security, thus these loans are secured. Apart from this, term loans also act as a steady and regular income for the lenders as borrowers need to pay the interest and repayment of principal irrespective of its financial position. Loans are classified into two main categories by the bankers namely Intermediate-Term Loans and Long-Term Loans. Intermediate Term Loan are repaid in monthly instalments from a business’s cash flow and are active for less than three years.
On the other side, Long-Term Loans are set for more than three years, generally between three and 10 years. The duration of these loan further extend to 20 years. These loans require quarterly or monthly payments out of the profits or cash flow. Today, banking institutions offer a variety of repayment plans for Loan. Thus, it becomes easy for individuals to opt for any plan that fits best for paying off the debt in even amounts. After considering the current financial circumstances, the need is just to choose a term loan in the best of interest. It has to be taken care that longer the term, the more an individual will owe as the interest accrues over a long period of time.

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Setindiabiz is an organized team of experienced CA, CS, & Lawyers, duly supported by a pool of trained accountants & paralegal staff that provides quality & affordable compliance services to startups & small businesses in India. The views, statements and recommendations expressed in this article or post are only for the sole objective of providing information, and it does not constitute professional advice or recommendation of the company. Neither the author nor the company or its affiliates accepts any liability for any loss or damage arising from any information in this article or any actions taken in reliance thereon.

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