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Term Loan

Term Loan Interest Rate & Fees

Last Updated 27th May 2022

  • Term loan also known as term finance can be used to meet the business requirements of small business setups.
  • Generally, this loan is taken for a shorter period of time, minimum 12 months to 60 months.
Bank Business Loan Rates Processing Fees Tenure
Bank of Baroda 8.65% 2%, Min Rs. 250 12 months to 60 months
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
Apply for Business Loan @ 14.00%*

What is a Term Loan?

Term loan meaning 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. Business loans are offered from 12 months to 60 months to small business units that are financially stable. Banks offer a term loan or term financing for various purposes such as purchasing or repairing equipment, for company expansion or to fulfil day-to-day business activities.The interest rates on these loans can be fixed or floating.

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.
  • Intermediate loan: It is a type of term loan which can be borrowed for minimum 24 months to maximum 10 years.
  • 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.

Purpose of 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 the business's existence must 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 for 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 are 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 amounts 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.

Term Loan - Advantages and Disadvantages

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 finance 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.

Business Term Loan Examples

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.

Term Loan Providers in India

These are the few lenders who provide term loan in India:-

  • HDFC Bank
  • IDBI Bank
  • Union Bank of India
  • PNB
  • Allahabad Bank

How to Apply for a 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.


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 requirements 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. The loan can be used for various business purposes such as to maintain day-to-day business activities or expansion of the business unit, or to purchase tools and equipment.

How Does a Term Loan Work?

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

What is the Difference Between a Term Loan and Working Capital Loan?

The difference between term loan and working capital loan is that collateral is mandatory in term loan where as it is not mandatory in working capital loan. Term loan are for longer tenure and working capital are for shorter tenure.

Which Type of Loan is Better Term Loan or Working Capital Loan?

Term loans are better if you wish to invest in heavy ventures and working capital loan works best if you want to meet operational expenditures. Your choice must be dependent on your financial needs.

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