A term loan is an option that offers financial backing to borrowers against an affordable interest rate. Since this credit offers a lucrative proposition for business owners, an in-depth study becomes imperative.
What is the purpose of a term loan?
A term loan is a business loan variant that offers liquidity backing to firm owners and comes with a fixed repayment tenor. Typically, borrowers can use the fund to expand their business, stock products, invest in shares, etc., whatever offers profits.
However, this credit comes with a rigid repayment structure based on which borrowers can plan their monthly outgo. The interest rate on this credit form can be fixed or floating based on the lending institution. While a term loan seems to be a great borrowing option, individuals also need to understand its variants for an informed decision.
What are the types of term loans available in the market?
The variants of the term loan are segregated based on the chosen tenor. They are discussed below.
- Short-term loans
Term loans that are available for a tenor of 12 to 18 months fall under this category. Typically, a short-term loan is perfect for a business requiring an emergency fund. Borrowers can repay the small loan amount within a shorter period, removing the concerns of defaulting. Many lending institutions consider loan variants with a tenor of 60 months under this category.
- Intermediate-term loans
The loan variants with a tenor of 36 to 50 months qualify under the intermediate-term category. The credit amount here is comparatively higher than short-term loans. Entrepreneurs can use this fund to purchase assets, equipment, invest working capital, stock raw materials, etc.
- Long-term loans
Any loan variant that has a repayment tenor of 5 years to 25 years is considered long-term. Since this variant offers substantial funds against minimal documents, borrowers prefer it for big-scale spending. For instance, business owners can utilise the fund to expand their business or make big payments. The secured nature of this credit variant further makes these investments practical. Borrowers can make timely payments and simultaneously save funds for better credibility.
As term loans are tenor specific, individuals must induce in-depth research before making any decision. For instance, researching long term vs short term business loans would help them understand their financial limitations and obligations attached with a chosen credit form. Systematic planning would also help in finding lenders offering better term loan interest rates and additional features.
Interested applicants can also look for popular term loan variants like a business loan. This credit form is designed specifically for entrepreneurs looking for financial support. Typically, borrowers can avail substantial credit to invest in business requirements. NBFCs like Bajaj Finserv offer such credit against simple eligibility and minimal documentation.
They also extend pre-approved offers that make the application process swift and hassle-free. Ideally, such offers are levied on credit forms like business loans, personal loans, etc. Check your pre-approved offers by entering a name and contact number.
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According to a report, the Reserve Bank of India has announced to offer financial help to small retail businesses hit by the current economic scenario. However, this relief fund is available for individuals without an overdue payment for not more than a month as of March 1, 2020.
Fulfilling this parameter can become a hindrance for some enterprises in need of emergency funds. When facing such situations, small entrepreneurs can look for short-term business financing alternatives.
Therefore, a term loan is a lucrative credit option for individuals planning to strengthen their business profile. However, potential borrowers must keep a tab on the important checklist before applying for a business loan or preferred credit variant. This would again facilitate better borrowing judgements and prospects for an enterprise.