Expanding a business involves sizable funding as per the extent of investment required. Nevertheless, business owners nowadays have several options available with them in terms of financing. Among them, one of the most notable options is a term loan. Financial institutions provide this mode of credit to businesses to help them manage their capital expenditures as well as asset creation requirements. At the same time, it also helps businesses handle any financial emergencies requiring big-ticket expenditure.
Term advances are offered against a rigid repayment structure and at a fixed or floating interest rate. Also, they come with flexible repayment tenures that can extend from 1 year to 25 years. Based on this repayment tenure, term loans have been divided into different sub-categories.
Types of term loans
- Short-term loans
Term loans that come with repayment tenure of 12 to 18 months are regarded as short-term advances. Businesses primarily avail this credit to meet their immediate financial requirements.
Additionally, this sub-type includes a smaller to medium size funding that companies can repay within a comparatively short time. Specific lenders consider loans of up to 60 months as a part of this category.
- Intermediate-term loans
Term credits with repayment tenure of 36 to 50 months qualify under this subtype. The amount involved here is significantly larger than short-term loans. Businesses use this funding primarily to invest in long-term assets like machinery, working capital infusion, office renovation, etc.
- Long-term loans
This sub-type of term loans carries repayment tenure of 5 to 25 years. Typically, companies borrow long-term advances to fulfil their big-ticket funding needs. For instance, if a company wants to establish an entirely new manufacturing unit, then it will require a significant amount, whereby a long-term loan is a suitably practical financing option. Also, this credit option is often secured in nature due to its funding quantum and repayment term involved.
Generally, term loans are purpose-built to help businesses in case of any financial requirements. Borrowers can perform a comparative study of long-term vs short-term business loan to decide which one is more suitable as per their needs.
Top 5 interesting things about term loans
- Secured and unsecured
Loan or credits are provided under two types of primary eligibility, secured and unsecured. In terms of secured loans, borrowers need to put up collateral to avail it, but unsecured advances do not come with such requirements. Usually, no other financial product combines these two types of credit apart from term advances. It is thus a unique feature of this credit option.
- Pre-determined loan amount
Typically, the loan amount here is pre-determined as per its tenure. For example, a financial institution offers a credit of up to Rs.10 lakh for short-term loans, whereas another one provides up to Rs.15 lakh. This can vary from one financial institution to another.
- Organised repayment plan
In terms of its repayment structure as well, this financial product follows a stringent schedule. Borrowers need to comply with this schedule and repay the credit within that period. Due to this organised repayment structure, borrowers can comfortably plan and repay their loans without much hassle.
- Interest rate type
Term loans interest rates include both fixed and floating rates. Borrowers can opt for one as per their requirements.
- Strict eligibility criteria
This financial product also has strict eligibility criteria. Lenders check the borrower’s repayment capacity, cash-flow of the business, funds in hand, etc. before approving any loan application.
Business loan, a category of term advances, is typically popular among business owners. It does not come with any constraints on its usage, allowing borrowers to use it for different purposes. NBFCs like Bajaj Finserv offer such credit of up to Rs.30 lakhs at favourable terms like attractive term loan interest rates.
Furthermore, the company also provides pre-approved offers, which reduce the hassle of loan application and help save time. It also applies to financial products like business loans, personal loans, etc. Borrowers can check their pre-approved offers by submitting their essential contact details.
The unique features of term loans distinguish it from other financial products. For instance, business loan, a category of term advance offers easy accessibility and no end-use restriction, which ultimately help borrowers utilise it as per their requirement. However, they must read the terms and conditions carefully before applying for a business loan.