TERM LOANS

BY : ROOPESH GOWDA
JKA20034
VI SEM BA LLB
JSS LAW COLLEGE
 INTRODUCTION
A term loan is a type of loan provided by banks for a specific period (term)Emphasize
that term loans are different from revolving credit facilities or lines of credit.
A term loan provides borrowers with a lump sum of cash upfront in exchange for
specific borrowing terms. Term loans are normally meant for established small
businesses with sound financial statements. In exchange for a specified amount of
cash, the borrower agrees to a certain repayment schedule with a fixed or floating
interest rate. Term loans may require substantial down payments to reduce the
payment amounts and the total cost of the loan.
 TYPES OF TERM
LOANS
Term loans come in several varieties, usually reflecting the lifespan of the loan. These include:
• Short-term loans: These types of term loans are usually offered to firms that don't qualify
for a line of credit. They generally run less than a year, though they can also refer to a loan
of up to 18 months.3
• Intermediate-term loans: These loans generally run between one to three years and are
paid in monthly installments from a company’s cash flow.
• Long-term loans: These loans last anywhere between three to 25 years. They use
company assets as collateral and require monthly or quarterly payments from profits or cash
flow. 
 FEATURES OF TERM LOANS
• Term loans are Secured Loans. The asset purchased using the term loan amount serves
as primary security and other assets of the business are used as collateral security
• The term loan must be repaid within the specified amount of time regardless of the
firm’s financial situation
• The amount and tenure for which the loan is taken are usually based on the purpose of
borrowing. The rates offered by the lenders vary from borrower to borrower
depending upon the risk associated with his credit profile, the proposed loan amount,
and tenure for which it is taken
• The term loan has a maturity period of 5 to 10 years. The loan is repaid in monthly
installments. Sometimes, the tenure is rescheduled to assist borrowers in dealing with
financial emergencies
• The lender will request that the borrower refrain from obtaining additional loans, repay
existing loans, and maintain a minimum asset base
• Term loans can be converted into equity in accordance with the lender's terms and
conditions
 ADVANTAGES OF TERM LOAN
• The loan comes cheap for the borrower at lower interest rates and
higher loan amount
• The interest paid on the term loan is tax deductible, so the borrower can
benefit from the interest paid
• The terms and conditions of the loan are flexible, so the borrower can
negotiate to suit his/her needs
• The term loans are debt financing, and the equity shareholder's interest
is not jeopardized
• Term loans are secured, so the lender has collateral security and the loan
will not pose a huge risk to the institution
 DISADVANTAGES OF TERM LOANS:

• As term loans have a long repayment tenure, the borrower has to pay
EMIs for a long time
• To secure term loans, the borrower must have high CIBIL or credit score
• Non-repayment of loan or EMIs in a timely manner will lead to high
penalty
• As the terms are negotiable, the conditions of the loan will favor the
borrower
WHAT IS THE ELIGIBILITY CRITERIA FOR TERM LOANS?

Banks or financial institutions lending term loans will only lend to

applicants who fulfill the necessary criteria. The borrower 
• Must have a minimum of 18 years and maximum of 65 years
• Should have high creditworthiness as well as good repayment history
• Can only borrow the money if he/she has a credit score of 750 or above
• Must have a regular stream of income
Moreover, the applicant should not have any past defaults with any
financial institution.
 CONCLUSION
In conclusion, term loans are up-front financial solutions for businesses
that extend for a long period of time. Term loan interest rates vary from
bank to bank depending on the applicant’s profile, business requirements,
purpose of the loan, etc. Several banks as well as financial institutions such
as Money View offer term loans to all kinds of businesses with varying
interest rates if you fulfill the eligibility criteria.