Generally, a term loan is a loan given by a bank for a particular amount that has an indicated repayment schedule amid a fixed or floating interest rate. It can also be referred to as a variable interest rate as it can vary over the duration of the debt obligation. A term loan indicates a primary loan which can only be granted to businesses, mostly equipment, real estate and even working capital that can be repaid within 25 years. Many investors and small business people who are aiming to expand or start a new venture are likely to apply for a term loan, but what is a Term Loan?
There are different types of loans, which are all beneficial for every business owner who aims for a bigger or smaller financial support. These loans also vary in the span of time they need to be paid off. Mostly, these types of loans can be paid in about ten to twenty-five years but these may also vary from one bank to the other. Some banks issue an extended repayment schedule of over thirty years.
Different Types of Loans
There are different types of term loans including short-term loans, intermediate-term loan, and the long-term loans. Each term loan varies from the other based on the process, the span of repayment as well as procedure. This will be tackled when answering the question: What is a Term Loan?
An example of term loans is the intermediate-term loan, which can run less than three years, and is advised by the bank to be paid in monthly installments with interests; in which repayment is inclined to the number of estimated years of the company’s asset financed.
A short-term loan, on the other hand, is considered one of the best options when you want to obtain a loan. This type of loan is easy to secure, and once a business owner is granted a term loan, funds can be received in as short as twenty-four hours. Banks are not the only authorities that can issue this type of loan; alternative lending can also offer this type of loan. The business owners find it efficient, as most of them aim to expand their businesses in a short span of time.
A long-term loan, on the other hand, requires a precise application and other requirements to process. Unlike short-term loans that offer a specific amount of money with a high-interest rate for repayment, long-term loans provide zero upfront cost and are considered more expensive. Long-Term loans usually have increasing interest over time.
To be more knowledgeable towards these types of term loans, one must have advanced financial information or must have a legal adviser to explain to him or her the difference between these term loans, its processes, and requirements as well as the terms and payment process.