The term loans are an important source of long term financing. Nowadays the term loans are provided by a wide variety of institutional lenders. The services are provided at convenient rates and are suited to meet the various needs of the borrowers.
Explanation of Term Loans
The term loans could be explained as a kind of primary vanilla commercial loans. They have the following characteristics:
- Rates of interest are fixed
- Date of maturity is fixed
- Fixed schedules of repayment. The schedules of repayment could either be quarterly or monthly
Types of Term Loans
Following are the two different kinds of term loans:
- Long-term loans
- Intermediate-term loans
Users of Term Loans
The term loans are availed by a wide range of business firms. However, the term loans are considered to be the most suitable for the small business entities that have been doing well since their incorporation.
Supply of Term Loans
The biggest positive aspect of the term loans is that there are a lot of banks that are dealing in term loans. However, the terms and conditions of the term loans tend to vary according to the bank that provides them.
Uses of Term Loans
The term loans are mostly used in the following areas:
- Buying out existent business entities
- Big investments of money made in areas like gathering working capital or buying of equipments and machinery
- Significant betterment in capital
Expenses incurred for Term Loans
The prices at which term loans are acquired are different for each bank. However, there are certain conditions that are always common. For example, if the borrower is able to clear the financial tests conducted by these banks he would be able to receive the term loans at lesser costs.
Requirements for obtaining Term Loans
The commercial banks look at the following characteristics of the borrowers before providing them with term loans:
- Amount of capital owned
- Credit capabilities
- Credibility of the business plans
- Collaterals being offered
Last Updated on : 1st July 2013