Business Term Loans

A business is always in need of money. Getting a loan from a bank is a quick solutionfor them but it is not as easy as it sounds. The business needs to determine the type ofloan it requires considering their need and then apply for the specific loan. Banksprovide numerous types of business term loans having a different rate of interest, tenureand qualification. So every business must carefully study the different loan productsbefore applying for any loan.

What is a Term Loan?

Term loan is a short to long term loan given by banks to business. Businesses utilisethis amount to meet its working capital requirements, asset purchase, expansion, etc.The period and interest of term loan depend on the type of loan product selected by thebusiness.

Term loans are also known as instalments loans. Instalment loans are the credit facilityin which bank makes full payment to the business. The repayment is in form of monthly,quarterly, half-yearly or on annual instalments depending upon the kind of agreement.The instalment loans help to meet all type of business expenses. The rates of intereston these loans vary depending on the period of the loan.Types of Term LoanThe different types of Business Term Loans are: 

Classified As Per Facility

Line-Of-Credit:This type of loan is generally availed by the small business owners. The line of credit loanhelps businesses to meet the working capital requirements like the purchase of inventory,daily expenses, etc. These loans carry a low rate of interest. Every business must makethis type of loan arrangement with banks so that they always have funds to meet theirroutine expenses. Interest payment for this type of term loan is on monthly basis.However, the principal payment can be made as per the suitability. But it is wiser to maketimely principal payments. 

Letter of Credit:

Letter of credit facility is given to businesses indulging in international transactions. Letterof credit ensures payment to the supplier in another country. In the case of non-paymentby the buyer to the bank in the home country, the bank holds the right to seize buyer’sasset and sell it in open market to recover the amount. Though it is not a direct form ofterm loan yet it acts like a loan to business organisations.

Classified As Per Duration/Tenor Long-Term Loan:

 As the name suggests, the long-term loan is for a longer duration of time. This type ofloan is suitable for those businesses that are expanding the business, acquiring anotherbusiness, refinancing, etc. A business having goodwill and a better track record in relationto the repayment of loans can easily obtain a long-term loan. The loan instalments are onmonthly basis. The rate of interest is lower than the short-term loans.

Short-Term Loan:

 Short- term loans are for a period of less than one year. This type of loan is useful forthose businesses which are seasonal in nature where the main business period isconfined to the limited period of time in a year. This loan is utilised by the business tomeet its working capital requirements. The rate of interest is generally higher. The loanpayment is to be made in full at the end of agreed term rather than paying in form ofmonthly instalments.

 Interim Loan:

 Interim loan is useful for businesses that run out of cash and need to make urgentpayments. Banks grant loan only to those borrowers who are reliable and timely pay offthe loan amount. The bank keeps assets like building, machinery, etc. as a mortgagewhile granting the interim loan. This short-term business financing arrangement is best ifyou wish to buy commercial property or during construction of the commercial property.

 Classified As Per Security Secured and Unsecured Loan: 

Interim loan is useful for businesses that run out of cash and need to make urgentpayments. Banks grant loan only to those borrowers who are reliable and timely pay offthe loan amount. The bank keeps assets like building, machinery, etc. as a mortgagewhile granting the interim loan. This short-term business financing arrangement is best ifyou wish to buy commercial property or during construction of the commercialpropertySecured loans are those loans on which the banks demand a collateral securityin exchange.

The collateral security can be any asset of the business. The bank has theright to sell off the asset and recover the money in case of non-payment of the loanamount. The period of secured loans is more than 12 months. The rate of interest iscomparatively lower than the unsecured loans. On the other hand, unsecured loans donot have any collateral security in exchange for a loan. Banks grant unsecured loans onlywhen they are sure of the repaying ability of the borrower. Term loans are easily available to SMEs.

Banks offer credit services to the small andmedium enterprises having a turnover of up to Rs. 250 crores. SME term loan is suitablefor businesses that need funds for imports of capital goods, construction projects, projectfinance, etc. The demands of businesses are increasing. They want to grow at a rapid pace and forthat, they need constant funds. We advises for structured credit solutions to meet yourbusiness requirements. Right from financing a project to purchasing an asset, we advisesa wide range of short-term and long-term loan products. What makes these loan productsattractive is the affordable rate of interest and schedule of repayment.