A term loan is a monetary loan that is repaid in regular payments over a set period of time.
The borrower pays interest only for a set period.
Term loans usually last between 1-3Years.
A term loan usually involves an unfixed interest rate that will add additional balance to be repaid.
A term loan is a monetary loan that is repaid in regular payments over a set period of time.
The borrower pays interest only for a set period.
Term loans usually last between 1-3Years.
A term loan usually involves an unfixed interest rate that will add additional balance to be repaid.
MATURITY – The maturity period of term loans is between 3-5 years.
NEGOTIATIONS – The term loans are negotiated loans between the borrowers and the lenders. They are akin to private placement of debentures in contrast to their public offering to investors.
SECURITY – Term loans typically represent secured borrowing. Usually assets, which are financed with the proceeds of the term loan, provide the prime security. Other assets of the firm may serve as collateral security.
INTEREST PAYMENT & PRINCIPAL REPAYMENT – The interest on term loans is a definite obligation that is payable irrespective of the financial situation of the customer. To the general category of borrowers, the bank charges an interest rate that is related to the credit risk of the proposal, subject usually to a certain minimum prime lending rate/ base rate.
EQUITY CONTRIBUTION may be required.
Benefits:
Payment will be the same every month so budgeting is straightforward
Term loan transactions are clear and
easy
Term loans have repayment penalties
Predictability- a term loan specifies when the interest on the loan will be completely paid. E.g. a 5yr loan will have its interest paid predictably in 5yrs
Customers generally use a term loan to get the capital they need to generate additional funds that will pay off the loan.
