TERM LOAN

Presented by Aswathy Krishna.S Roll No: 8

MEANING
A loan is the purchase of the present use of money with the promise to repay the amount in the future according to a pre-arranged schedule and at a specified rate of interest. A monetary loan that has to be repaid in regular payments over a set period of time is referred to as a term loan.

 Bank term loans are very a common kind of lending. An unfixed interest rate is usually involved in a term loan that will add additional balance to be repaid. inventory) that generate the cash flows for repayment of the loan.    . The repayment of the loans and facilities is normally fixed on case to case basis depending on projected cash flow of the borrower. Term loans are generally provided as working capital for acquiring income producing assets (machinery. equipment.

Term loans are also a source of long term debt. they are generally obtained for financing large expansion. In India. modernisation or diversification projects. as the assumption is that they will increase their profit over time  .  Term loans can be given on an individual basis but are often used for small business loans. The ability to repay over a long period of time is attractive for new or expanding enterprises.

 One thing to consider when getting a term loan is whether the interest rate is fixed or floating  . Term loans are a good way of quickly increasing capital in order to raise a business· supply capabilities or range..

 .CHARACTERISTICS OF TERM LOANS Time to maturity  Repayment Schedule.  Interest.  Security.

preliminary expenses and margin money for working capital Foreign currency term loan for import of plant and machinery Assets which are financial with term loan is the prime security .FEATURES OF TERM LOAN ‡ ‡ ‡ ‡ ‡ ‡ Type of debt financing FI provides rupee term loan and foreign currency term loan Mainly for investment in fixed assets Also for getting technical know-how.

‡ ‡ ‡ ‡ Other assets of the firm can be collateral Repayable in equal half yearly or quarterly installment Interest rate charged is as per credit risk of the project Incase of default of payment penal interest is charged .

linked to base rates (Rates can rise or fall) Repayment holidays .improve your cashflow by making no loan repayments or repaying only interest for a fixed term after drawing down your loan .enjoy the peace of mind of fixed monthly repayments Variable rate .BENEFITS OF TERM LOAN    Fixed rate .

pick the frequency that suits you from monthly. half yearly and yearly Staged drawdown . capital only or interest only Repayment frequency .BENEFITS OF TERM LOAN      Repayment style .use surplus cash to reduce interest charges and benefit your business Flexibility .save on interest costs and enjoy lower initial payments Make one-off repayments . quarterly.choose from capital and interest.

term loans are a good way of increasing capital in a short span of time  . For raising a business· supply capabilities or range. as they have huge time to repay the loan amount and it is assumed that they will increase their profit over time. It is an attractive loan for new or expanding enterprises.WHO CAN HAVE A TERM LOAN?  Individuals can have a term loan but they are usually used for small business loans.

marketing and selling arrangement .particulars of the firm .profitability and cash flow .means of financing .government consent .cost of the project .particulars of the project .TERM LOAN PROCEDURE ‡ ‡ Submission of loan application with project report Project report .

‡ ‡ ‡ ‡ Initial processing of loan application . managerial and economic appraisal Issue of letter of sanction Acceptance of terms and conditions by the borrower . financial.additional information may be added Detailed appraisal of proposed project .by passing appropriate resolutions . technical.marketing.

creation of mortgage. deposit of title deeds and hypothecation of movable property .FI sends the draft agreement to the borrower which is to be signed and stamped by the borrower Creation of charge over security .‡ ‡ Execution of loan agreement .

contribution made by promoters .compliance of statutory requirements Based on such information disbursement of loan amount is decided ‡ .Disbursement of loans borrower is required to submit following information .financial status of project .physical progress of project .projected fund flow statement .

periodic site visit .it is done at 2 stage .progress report submitted by nominee director Operational stage .implementation stage & operational stage Implementation stage .quarterly progress report .progress report submitted by nominee director .regular reports from promoters .periodic site visit .‡ Monitoring of loans .

Intermediate term loan Short-term loans .TYPES OF TERM LOAN    long-term.

 . but can be longer for real estate or equipment.  They also can be used to carry a business through a depressed cycle. purchasing facilities.  These loans are used for major business expenses such as vehicles. construction and furnishings. Long-term loans usually mature in one to seven years.LONG-TERM.

CHARACTERISTICS OF LONG-TERM LOANS .Length of Term  Time to Grow:  Structure  Interest Cost  Challenging to Get Approved  Limited Financial Options  .

Maturity generally runs more than one year but less than five. vehicles. and plant and office equipment. boats. Consumer loans for autos. and home repairs and remodeling are also of intermediate term .INTERMEDIATE-TERM LOANS Term loans finance the purchase of furniture. fixtures.

or accounts receivable loans. usually reach maturity within one year or less A short term business loan is an option for an established business that has a strong support and patronage  . working capital loans. typically lines of credit.Short-term loans  Short-term loans.

BENEFITS OF SHORT TERM LOANS:       do not usually require collateral allow quick application that makes the funds available in several days or even hours require little paperwork provide you with money when you feel a sudden unexpected need With short term loans you do not burden yourself with long term obligations Short term loans are available from various lenders that's why it's possible to find short term loans that fit your budget and lenders that offer you better conditions .

DISADVANTAGES OF SHORT TERM LOANS usually more expansive. ´ not secured by collateral the lender raises interest rates to cover the risk ´ Before giving you short term loans the lender is likely to investigate into your credit history and if it is excellent you will be offered short term loans with lower interest rates ´ .

THE TERM LOAN CAN BE AVAILED TO : Purchase of Fixed Assets  Switching of Higher Interest Loans  Mortgage Term Loan  .

They provide deposit. The list of specialized financial institutions in India mainly includes.SPECIALIZED FINANCIAL INSTITUTIONS IN INDIA Commercial banks offer a wide range of corporate financial services that address the specific needs of private enterprise. National Housing Bank. IDBI Bank. IFCI. Small Industries Development Bank of India. Export-Import Bank Of India. Board for Industrial & Financial Reconstruction. They are government undertakings established with a view to offer financial as well as technical assistance to the Indian industries. . loan and trading facilities but will not service investment activities in financial markets.

they would be better positioned to lend projects for short to medium term.GUIDELINES OF RBI The Reserve Bank of India (RBI) has told banks to focus on lending for the short and medium term rather than lock themselves in long-term loans  RBI told banks that since the average liability on the books of banks was in the range of one to two years. will help banks in improving their asset-liability mismatches  all categories of loans should be priced only with reference to the base rate  .

PUBLIC SECTOR BANKS State Bank of India 7.00% Union Bank 8.75% State Bank of Mysore 7.25% Indian Overseas Bank 8.25% .00% IDBI Bank 8.LATEST LENDING RATES (BASE RATES) In terms of RBI guidelines. 2010.75% Corporation Bank 7.00% Central Bank of India 8.75% Bank of India 8.00% Vijaya Bank 8.00% Indian Bank 8.50% Federal Bank 7. Banks in India have switched to Base Rate system from Benchmark Prime Lending Rate (BPLR) system from July 01.00% Punjab National Bank 8.00% Canara Bank 8.00% Uco Bank 8.00% Bank of Baroda 8.00% Indian Bank 8.

50% DCB 7.00% Karur Vysya Bank 8.50% .00% Bank of Rajasthan 8.25% ICICI Bank 7.PRIVATE SECTOR BANKS HDFC Bank 7.75% Dhanlaxmi Bank 7.

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