Survival in and post-pandemic for businesses worldwide was and is too hard. It’s pretty interesting now that all eyes fall on 2022 as these businesses and the economy tries to return to normality. This normalcy might seem relatively effortless on a paper yet very difficult to achieve in reality.
Why is that so? Two things are likely to affect. One, returning to the good olden days is creating huge demand and organizations are forced to quench them. Two, businesses are actively suffering from less to no cash flow, and to keep things going is a pain.
That’s where the concept of a Term loan is a true gift in despair. With a term loan, one can scale their business to heights as it makes things really easy to work with. In this article, we will explore all the attributes of a term loan and how it can help you scale your business.
What is a Term Loan?
A term loan is a type of commercial credit given for a stipulated period. Financial institutions provide these loans on the condition of repayment in fixed instalments (EMI) and interest. They are offered at both floating and fixed rates of interest. Personal loans, business loans, auto loans, education loans, gold loans, and home loans are some examples of term loans. The repayment tenure of an unsecured term loan ranges from one year to five years, whereas for a secured term loan, it can go up to 15 years.
Here are 3 types of term loans that are most prominent in the industry, and you should know them all before you get your hands on them.
Types of terms Loans
Businesses can pick from several different types of term loans. They are frequently tailored to the needs of borrowers depending on parameters such as the amount of capital required by the business, the borrower’s repayment capability, and the company’s financial health in terms of cash flow and cash on hand. Most loan conditions, including the rate of interest to be charged on loan, are influenced by these variables. The most frequent way to classify a term loan is by the length of the loan. Hence different types of term loans:
1. Short Term Loans
Short term loans are typically used for medium-sized funding. These loans are provided for a tenure ranging from 12-18 months. And they’re frequently offered at higher interest rates, with a faster approval and disbursement procedure.
2. Intermediate-Term Loans
Loans with a length of 3 to 5 years are classified as intermediate or mid-term. These loans have a large ticket size and can be used to pay large-budget purchases like machinery for a firm, renovation or repairing of an asset.
3. Long Term Loans
Long-term loans, which can last up to 30 years, are frequently offered at low-interest rates and flexible repayment plans. EMI payments are minimal, but they come with many tax benefits in the form of interest deductions. As a result, long-term loans are a practical way for corporates to satisfy one-time finance demands.
You are certainly wondering about the eligibility, and yes, there is a specific criterion that you must satisfy to proceed further. And here they are:
Term Loan Eligibility
- An Applicant should meet the following eligibility criteria to get a term loan:
- Age Limit -21-65
- Indian Citizen
- Good Credit Score
- Regular source of Income
Now that you know about the width and depth of a Term Loan, it’s time to learn about some significant pros and cons of a Term Loan that you might want to look into.
The Pros and cons of Term Loans for Business Owners
Every financing option has advantages and disadvantages, and term loans are no exception. Once you understand the pros and cons of term loans, you’ll feel more confident pursuing this funding option.
Advantages of Term Loans:
- Minimum eligibility requirement & Hassle-free: These loans are simple to obtain. The simplest qualifying conditions are submitting a few key documents, which makes the entire loan procedure simple.
- Tax Reduction: The interest on these loans falls under tax-deductible expenditure. Therefore, the tax advantage is accessible to such interest.
- Flexibility: These loans can be renegotiated. As a result, they are simple to negotiate between the borrower and the bank. These loans’ T&C (terms and conditions) are also flexible.
- Control: Debt finance is represented by the term loan. As a result, the equity stockholders’ interest is not harmed or lost.
- Affordable EMI’s: You can choose a repayment tenure per your repayment capacity. Shorter tenure, higher EMIs; longer tenure, lower EMIs.
Disadvantages of Term Loans:
- Commitment: Long-term EMI repayment burden
- Risk: Like any other debt financing, Term loans enhance the firm’s financial risk. Debt financing is beneficial only if the inbound return rate is higher than the capital cost; otherwise, it is detrimental to shareholders’ interests.
- Collateral: In some cases, collateral is also required.
The big question. How would you get it? Here’s how:
How to obtain a Term Loan?
Due to the various advantages provided by these loans, like the flexibility of loan tenure, ease of repayment via affordable EMIs, easy application and documentation process, and limited cost of borrowing, they are one of the most preferred instruments of lending and borrowing. Hence, if a business is looking to take up a business loan at the cheapest rate, it should consider YubiLoans as an option. YubiLoans is India’s Largest Debt Marketplace- Trusted by more than 750 lenders, The YubiLoans Provides access to borrowers and lenders to provide a complete debt ecosystem from discovery, execution & fulfilment.
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Additional Reads: How Barbeque Nation raised 50Cr term loan in only 3 weeks’ time