Understanding Term Loans: Definition, Eligibility, Rates & Types

When it comes to running a business, having access to sufficient capital is essential for growth and overall success. However, not all companies have the necessary funds handy to cover expenses such as equipment purchases, inventory, or expansion plans. This is where Term Loans can be a valuable tool for business owners.
 
By taking out a Term Loan, businesses can receive a lump sum amount that can be used for various purposes, with the flexibility to repay the loan over a fixed period. Additionally, these loans frequently come with lower interest rates than other types of finance, making them a cost-effective alternative for firms needing to borrow money.
 
If you are also a business owner looking for a reliable financial tool to support and grow your business, consider taking advantage of Term Loans from Hero FinCorp. Many companies use these popular forms of business financing to support growth, investment, and operations. In short, a term loan is a lump sum borrowed from a lender and repaid over a fixed period.
 
In this blog, we will discuss what Term Loans are, their features, eligibility criteria, types of Term Loans, documents required to apply for a Term Loan, Term Loan interest rates, and business loan working capital formula.
 
Also Read: Advantages of using EMI Calculator before Applying for Loan
 

What is a Term Loan?

 
A Term Loan is a commercial credit that has a fixed repayment tenure of several years. It is usually used to finance long-term investments in fixed assets or to fund major business expenses. The repayment period can range from one to five years, depending on the lender's terms and conditions and the borrower's affordability.
 

Features of Term Loans

Here are the key features of Term Loans:
 

1. The repayment schedule for Term Loans is fixed, which means that the borrower has to repay the loan amount in instalments over the loan period. The repayment schedule is predetermined at the time of loan approval, and the borrower has to adhere to it.
2. The interest rates for Term Loans depend on the risk of the proposal, loan amount, and loan tenure.
3. The principal amount of a Term Loan remains constant; however, the interest rates may be less.
4. Commercial loans can be repaid in quarterly instalments, whereas Term Loans for financial institutions are repayable in semi-annual instalments.

Types of Term Loans

Some of the common types of Term Loans are:
 

1. Short-Term Loans: Short-term Term Loans have a 12-18 months repayment period. These loans are usually used to finance working capital requirements for small and medium-sized businesses.
2. Long-Term Loans: These loans have longer repayment periods, such as 5-10 years. These loans are usually used to finance long-term investments in fixed assets, such as land, buildings, or other property.
3. Intermediate Term Loans: These come with a longer tenure of 2-5 years. With these loans, businesses can boost their working capital and purchase machinery.

Eligibility Criteria for Term Loans

Some of the common factors we at Hero FinCorp consider while approving Term Loans are:
 

• You must be an Indian citizen
• Your age must be between 21 to 65 years
• Your business vintage must be at least three years
• A credit score of 750 or higher is preferred

Documents Required for Term Loans

Here are the documents required for Term Loan:
 

• KYC documents like Aadhar card, PAN card, passport, or voter ID card.
• Proof of business ownership
• Miscellaneous financial documents
• Last 12-month bank statements

Business Loan Working Capital Formula

Working capital is the amount of money a business requires to operate its day-to-day operations. It includes cash, inventory, and accounts receivable. The Instant Business Loan working capital formula is used to calculate the amount of working capital required by a business.
 
The formula is as follows:
 
Working Capital = Current Assets - Current Liabilities
 
The working capital requirement can vary depending on the business's industry, size, and seasonality. Lenders usually consider the working capital requirement while approving Term Loans.
 
Also Read: Why Personal Loan is Good for your Finance Decision
 

Term Loan Interest Rates

The interest rates for Hero FinCorp Term Loans may vary depending on the borrower’s eligibility and our terms and conditions. However, one of the most common factors affecting interest rates is your credit score. Term Loans allow you to choose the type of interest rate as per the market. For example - You can choose between fixed and floating interest rates as per your preference.
 

Conclusion

Term Loans are a popular financing option for individuals and businesses, offering a fixed sum of money that can be repaid over a set period with interest. Businesses of all sizes can take Term Loans from Hero FinCorp and utilise them as required. Overall, understanding the basics of Term Loans can help borrowers make informed decisions about their financing options.