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Term Loan

Term Loan Interest Rates & Fees

Last Updated 15th Jun 2021

Bank Business Loan Rates Processing Fees Tenure
Corporation Bank 8.90% 1.5%, Min Rs. 500 12 months to 36 months
Andhra Bank 8.90% Case to Case 12 months to 60 months
PNB 8.95% 1.8% + Taxes 12 months to 60 months
Allahabad Bank 9.05% 1.06%, Min Rs. 1068 12 months to 60 months
Bank of Maharashtra 9.55% 1.00%, Min Rs. 1,000 12 months to 84 months
Apply for Business Loan @ 14.00%*

What is a Term Loan?

A term loan is a monetary loan from any bank or a non-banking financial institution that is to be repaid in regular payments over a fixed period. Banks offer a term loan on various loan products such as business loan, personal loan, home loan, education loan, gold loan & auto loan. In case of a business loan, the tenure of term loans ranges from 12 months to 60 months.

Types of Term Loan

Term loans can be classified under the following heads:

  • Short-term loan: The tenure of Short-term business loans ranges from 12 to 24 months.
  • Long-term loan: Borrowers can avail long-term business loans for a minimum tenure of 10 years and up to 30 years.

Term Loan Category

  • Secured Loan: Secured business loans require collateral security in the form of equipment, machinery, raw materials, stock, or residential/commercial properties. The rate of Interest on secured loans is comparatively lower than unsecured business loans.
  • Unsecured Loan: Unsecured business loans are loans that do not require you to submit any collateral or security to the lender. These loans have a higher risk and thus have a higher rate of Interest.

Business Purpose Term Loan

Term loans can be used to avail funds for various business activities, as mentioned below:

  • Business expansion
  • Purchase equipment, machinery or raw materials
  • Manage cash flow
  • Meet working capital requirements
  • Buying office or business space/land
  • Paying-off rent and salaries
  • Hiring new staff
  • Debt consolidation

Eligibility of Term Loan- Business Loan

To avail a term loan for business, borrowers need to fulfil the following eligibility criteria:

  • Age: Banks consider the minimum age limit of 21 years for a business term loan. Also, borrowers upto the age of 65 years can apply for a business loan with top lenders.
  • Profession: Both self-employed professionals such as Doctors, CA, Architects & self-employed non-professionals including sole proprietors, people in partnership, or working with a private or public limited company can avail a term loan for business purposes.
  • Business Vintage: The minimum tenure for your business's existence ranges from 3 years to 5 years, depending on whether you are a self-employed professional or non-professional.
  • Credit Score: Banks consider a minimum credit score of 650 to provide business term loans.
  • Annual Turnover: Businesses should have a yearly turnover of ₹ 1 Cr or above with bank stability of at least six months to avail the business term loans. In some cases, banks or NBFCs may also require a minimum turnover of at least ₹ 12 Lakh .

Documents Required to apply Term Loan

Below-mentioned is documents required to apply the term loan:

  • Signed Application Form
  • Identity Proof (PAN)
  • Residential Address Proof
  • Last three years, ITR (self and business), profit and loss account, balance sheets certified/audited by a CA.
  • Last 12 months bank account statement (self and business)
  • Certificate and Proof of Business Existence
  • Business Profile
  • Office address - ownership/ lease / rent agreement/ utility bill

How Term Loan Works?

Term loans have a predetermined loan tenure, interest rate, EMIs etc., making it an easy option to manage the loan EMI. Below-mentioned is some of the features of term loans to help one understand the nature of term loans.

  • Fixed Loan Amount: The loan amount of a term loan remains fixed throughout the loan tenure. For a business, term loan borrowers can avail loan amount ranging from ₹ 50,000 to ₹ 100 Cr.
  • Rate of Interest: Term loans are generally fixed-rate loans. However, borrowers can also choose term loans at a floating rate of Interest.
  • Secured/Unsecured term Loan: A term loan can be availed with or without any requirement of collateral/ security depending on the eligibility the borrower.
  • Fixed Repayment Schedule: One of the most significant advantages of a term loan is that borrowers can easily determine the EMI using an online EMI calculator. A term loan has a fixed repayment tenure for repaying loan EMIs, consisting of both principal amount & interest component of the loan.

Advantages & Disadvantages of Term Loan

A term loan is one of the best financing options to avail credit for long-term debts over a specified period. Here are some of the advantages & disadvantages of a term loan.

Advantages of a term loan
  • A term loan provides flexibility to choose loan tenure as per the repayment capability of the borrower.
  • You can choose the repayment tenure of a loan that can be paid easy & affordable EMIs.
  • With an idea about the total cost of the loan, the borrowers can easily plan their budget with a term loan.
  • A term loan can be availed with minimal documentation & hassle-free eligibility criteria.
Disadvantages of a term loan

As discussed above, a term loan is considered one of the best options to avail credit for a long-term; however, it can also push into financial obstacles. Thus, you must repay all your EMI's on time & keep a regular track of due dates of your term loan EMI. Along with that, it is significant to ensure that you do not resort to unnecessary availing of funds.

Term Loan Example – Business

Some of the purposes for which you can avail a business term loan are mentioned below:

  • Working Capital: Working capital loans are short-term business loans that can be availed for a tenure upto 12 months for maintaining the cash flow or managing day-to-day operations of the business.
  • Equipment financing: Businesses require finance for purchasing equipment for various purposes including agriculture, farming, construction, trading, manufacturing etc. that can be availed ranging from ₹ 1 Lakh up to ₹ 10 Cr.

How to Apply Term Loan?

  • To apply for a term loan, borrowers need to visit the bank's website or an online marketplace like MyLoanCare.
  • He/she can also download the MyLoanCare app from the play store.
  • They need to fill personal details like name, number, city, annual turnover, ITR years, and loan requirement details to apply for a business loan on the business loan page.
  • Borrowers can also check multiple banks' offers based on their eligibility and then compare business loan rates and select the bank with the lowest rates.

FAQs

What are the Term Loan examples?

Some of the examples of long-term loans would be home loans, loan against property, personal loans. Gold loan, education loan, a business loan with a short duration of fewer than 12 months care short term loans.

What are the types of term loan?

Based on loan tenure, a term loan can be classified as short-term loans & long-term loans. Term loans can also be classified as secured & unsecured depending on collateral and security requirement for availing a loan.

Is a Business Loan a Term Loan?

Yes, a business loan is a term loan available at a fixed tenure with an option of both fixed & floating rate of Interest.

How does a term loan work?

A term loan is a loan that is to repaid in regular payments over a fixed time. Banks provide these loans with a predetermined loan amount at both fixed & floating rate of Interest.

Is Education Loan a Term Loan?

Yes, an education loan is also a term loan as it has a predefined loan tenure and has to be repaid in a definite time frame.


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