Term loans are essential for the formation, operation, and growth of commercial companies. They serve as the backbone in securing significant financial investments, typically through term loans repaid within agreed-upon time frames.
A term loan in business financing has clear repayment terms, like a set loan period and interest rate. Borrowers need to make regular monthly payments (EMIs) until the loan is fully paid off.
EMIs, or monthly payments, include two parts: the main amount you borrowed and interest, calculated using the effective interest rate.
Term loans work well for businesses due to fixed terms and low-interest rates. They have five parts: loan amount, interest rate, loan period, repayment plan, and collateral terms.
Here are some of the examples of a term loan that you should know;
- Working Capital Loans: Support daily expenses, with a one-year return period.
- Overdraft: Allows credit up to a limit, charging interest on what’s used, with a flexible repayment period.
- Equipment Financing: Used for various needs, with the amount based on background and business type.
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Businesses have a range of term loan options tailored to their specific needs. These loans are influenced by factors such as the required capital, repayment capability, and the economic health of the corporation. The loan’s terms, including interest rates, are largely determined by these criteria. The primary categorization of term loans is based on loan tenure, leading to the following types:
With a maximum duration of 2 years, these loans, typically lasting one to two years, address day-to-day business needs and working capital requirements. Short-term loans may involve higher interest rates due to the shorter repayment period and can demand weekly repayments for very brief terms.
Spanning two to five years, these loans serve as a blend of short- and long-term financing. Businesses often use them for renovating or repairing fixed assets, with interest rates higher than long-term loans but less demanding application requirements.
Extending beyond five years, these loans, sometimes exceeding 25 or 30 years, are often secured with collateral due to larger ticket sizes and associated risks. Examples include home loans, auto loans, and loans against property. While rates are lower with collateral, interest rates may be higher due to increased risk.
Term loans fall into two categories;
Requires collateral, such as equipment, machinery, or real estate, offering security to the lender. Common for larger loans.
Does not require collateral, with banks and non-bank financial companies (NBFCs) offering reasonable interest rates, suitable for businesses without significant assets for collateral.
It also has some good benefits, see them below;
- Lower Interest Rates: Longer terms mean cheaper rates.
- Enhanced Flexibility: Negotiate terms based on credit score for flexibility.
- Cash Flow Improvement: Frees up cash for other needs.
- Speedy Approval: Faster approval compared to other options.
- Preserves Ownership Equity: As a form of debt financing, it doesn’t impact ownership control.
Apply quickly – it only takes 5 minutes. Upload your documents online for a credit analysis. We’ll review your documents and assess your application.
Once approved, the funds will be credited to your account. Applying for a term loan is now a simple online process that requires a filled-out application form, soft copies of your documents, a stable internet connection, and a good credit score.
The entire procedure typically takes a few business days, and you’ll see the approved funds in your account. There are four ways to check eligibility for a term loan.
1. Fill the application form online which takes only 5 minutes to do
2. Upload all the required documents as stated by the bank you went to borrow the money
3. The bank will check all your credit analysis score to be sure you are good to go
4. When loan had loan had been approved, it will be sent to the account you gave them during your registration and your repayment plan starts immediately.
For you to qualify to apply for a term loan, it has to be that your business is at least one year old in which ever industry your into.
Secondly, Your monthly business sales should be good enough as you will also be making account of that before the loan approval will be completed.
The interest rate for this loan is just 1% monthly but if your able to pay before the month ends you won’t have to insure more interest rates.
Why not take this opportunity and fund your business with enough money that will help you grow.
The success of every business is if your supporting it with enough money, that way, you will stay focused and diligent.