Term loan is a type of loan provided by banks and financial institutions to businesses or individuals for a specific period with a fixed repayment schedule. It is a form of debt financing that is commonly used to fund capital expenditures, such as the purchase of equipment, machinery, or other fixed assets.
Term loans are typically secured loans, where the borrower offers collateral to the lender to obtain the loan amount. The loan amount, interest rate, and repayment period are agreed upon between the borrower and the lender at the time of disbursal.
Term loans can have tenures ranging from 1 to 10 years, depending on the purpose of the loan and the borrower’s repayment capacity. Interest rates on term loans can be fixed or floating, depending on the agreement between the borrower and the lender.
Financial professionals, such as Chartered Accountants and business consultants, can assist borrowers in preparing the loan application, evaluating the collateral, and negotiating with banks or financial institutions to secure favorable terms and interest rates.
By availing term loan services, borrowers can meet their capital expenditure requirements without putting undue pressure on their cash flows. However, borrowers must exercise caution while availing term loans as any default in repayment can lead to legal action by the lender.