A term loan is one of the most viable sources of financial back-up for MSME and start-up owners. This credit form offers financial backing to borrowers against an affordable interest rate. According to a report, the SIDBI has extended up to 20% assistance on both term loans and working capital, which is the highest outstanding in the previous 12 months.
This data indicates a perfect time for business owners to avail the said credit to manage their operational expenses. Since this credit offers a lucrative proposal for firms, checking various factors pertaining to it can be beneficial.
What does a term loan mean?
Every business owner requires funds to restock raw items, expand his/her business, invest in shares, and more. In this regard, a short-term business loan variant like a term loan can be beneficial. Individuals are free to invest the funds in business dealings that ascertain profit.
While this credit option is lucrative, it is imperative to know that it comes with a stringent repayment structure. Typically, there are two variants of term loan interest rates, i.e., fixed and floating. Here the interest rates levied on the credit depends on the financial institution.
Apart from understanding the interest structure, a borrower must evaluate the factors affecting terms of a business loan or relevant credit. In this matter, checking the tenor is important.
Typically, term loans are divided into three categories based on the tenor preference. They are discussed below.
What are the types of term loans?
- Short-term loans
This loan variant is available for a tenor of 12 to 18 months. Perfect for immediate needs or small payments, this term loan suits every business’ requirements. Borrowers don’t need to plan a long repayment like with other credit forms. Instead, they can make repayments within a shorter time frame and simultaneously improve credibility. This again removes the issues of defaulting and debts, making it a safe credit option.
- Intermediate-term loans
Intermediate-term loans come with a tenor of 36 to 50 months. This credit form is perfect for businesses needing substantial credit for intermediary spending. Firm owners can use this fund to purchase equipment, assets, working capital, purchase raw materials, etc.
- Long-term loans
Long term loans include credit variants with a tenor of 5 to 25 years. This loan form is apt for big brands or businesses that require considerable funds to meet big-scale expenses. They can easily invest the funds into expanding businesses or backup the financial requirement of a product launch. Since these require minimal documentation and simple eligibility, an individual can assess the funds with ease. Borrowers further receive the option to plan the payments and initiate savings simultaneously.
Apart from understanding the differences and variables of the mentioned credit, one must evaluate their repayment capability to make an informed decision. In this regard, debating long terms vs short term business loans what would be best would be beneficial. This would aid in finding the charges linked with the specific term loan variant.
Entrepreneurs can also look for alternative credit variants like a business loan when the funds available seem insufficient. This credit form supports the financial requirements of entrepreneurs. Borrowers can avail substantial credits to maintain the cash flow without hassle. Some lenders offer customized services and levy affordable interest rates on the said credit.
NBFCs like Bajaj Finserv offer such credit against simple eligibility and minimal documentation. They also extend pre-approved offers that make the application process swift and hassle-free. These offers are available on credit forms like business loans, personal loans, etc. Check your pre-approved offer by entering a name and contact number.
A term loan is a smart credit solution for firms requiring immediate financial backup. The simple terms make it a perfect choice to finance a business’s dealings. However, if the credit extended against the loan seems insufficient, one can look for alternatives like a business loan. Also, keeping a check on the document and eligibility requirements would streamline the borrowing judgements.