Term loans, a common financial product in India, are structured loans with a fixed repayment schedule over a specified term. Lendingkart offers working capital loans for various purposes, including business expansion, equipment purchase, or working capital needs. These loans typically have fixed or floating interest rates, with flexible repayment options tailored to the borrower’s financial capacity. Term loans assessment from Indian lenders often require collateral and thorough documentation, with online platforms simplifying the application process. By providing access to structured financing, term loans play a crucial role in supporting businesses and individuals in achieving their financial goals.
What is a term loan?
To explain term loan meaning in simple terms, it is a type of loan that is dispersed in a lump sum and repaid over a fixed period of time, known as a term. This type of business loan is commonly used by businesses and individuals to finance specific projects, expand operations, or meet immediate financial needs.
Types of Term Loans
Short-Term Loans
- Usually up to 1 year in duration
- Offered to firms that don’t qualify for a line of credit
- This can also refer to loans up to 18 months
- Used for short-term financial needs like working capital, inventory purchase, or unexpected expenses
- Interest rates are generally higher due to the short repayment period
Intermediate-Term Loans
- Loan terms range from 1 to 5 years
- Ideal for business expansions, equipment purchases, or moderate-sized projects
- Interest rates fall between short-term and long-term rates
- A combination of short-term and long-term loans
Long-Term Loans
- Loan terms extend beyond 5 years
- Used for major investments like buying a home, large-scale business expansion, or advanced education
- Interest rates are generally lower compared to short-term and medium-term loans
- Can last anywhere between 3 to 25 years
- Use company assets as collateral and require monthly or quarterly payments from profits or cash flow
- Limit other financial commitments the company may take on, including other debts, dividends, or principals’ salaries
Both short-term and intermediate-term loans like MSME loans may also be balloon loans, meaning the final instalment is much larger than the previous ones. Term loans provide borrowers with a lump sum of cash upfront in exchange for specific borrowing terms.
Features Of Term Loan
- Fixed Repayment Schedule: Term loans have a fixed repayment schedule, which ensures that the borrower knows exactly how much they need to repay each month and when.
- Fixed Interest Rate: The interest rate for term loans is usually fixed, which means that the borrower knows exactly how much they will pay in interest over the life of the loan.
- Collateral: Term loans often require collateral, which is an asset that the lender can seize if the borrower defaults on the loan.
- Flexibility: Term loans can be tailored to meet the specific needs of the borrower, with flexible repayment options and loan terms.
Advantages Of Term Loans
Predictable Repayments
- Fixed Repayment Schedule: Term loans offer a fixed repayment schedule, ensuring that borrowers know exactly how much they need to repay each month and when.
- Reduced Cash Crunch: Term loans provide immediate upfront financing, reducing cash crunch in businesses and allowing them to manage their finances effectively.
Flexibility in Use of Funds
- Longer Repayment Period: Term loans can be used for long-term projects or investments, providing the necessary time to arrange funds and repay the loan in instalments.
- Flexibility in Loan Amount: Term loans can be used for a variety of purposes, such as purchasing fixed assets like machinery or buildings, or for business expansions.
Improved Credit Score
- Timely Repayments: Timely repayment of term loans can improve a borrower’s credit score, making it easier to access future loans.
Security and Collateral
- Secured Borrowings: Term loans are secured borrowings, where assets are often put up as security or collateral against payment to ensure timely repayment.
- Reduced Risk: The use of collateral reduces the risk of default and ensures that lenders are protected in case of non-payment.
No Penalties for Early Repayment
- Flexibility in Repayment: Term loans can be repaid before the scheduled maturity period without incurring any penalties.
Benefits for Businesses
- Immediate Funding: Term loans provide immediate funding for businesses, allowing them to meet their financial needs and achieve their goals.
- Improved Financial Management: Term loans help businesses manage their finances effectively by providing a predictable repayment schedule and reducing cash crunch
How does a Term Loan work?
These loans are typically used for long-term investments, such as purchasing fixed assets, expanding operations, or meeting immediate financial needs. The process begins with an online application, where borrowers provide necessary documents, including financial statements and identification proof, to complete the application process. Lenders evaluate the borrower’s credit score, financial performance, and collateral to determine eligibility. Once approved, the borrower receives the loan amount and begins repaying it through fixed monthly instalments, known as EMIs. Term loans offer a fixed repayment schedule and interest rate, ensuring predictable repayments and making it easier for borrowers to manage their finances. Additionally, borrowers can make partial prepayments to reduce their future payment burden. With the flexibility to use the funds for various purposes and the potential to improve credit scores through timely repayment, term loans have become a valuable tool for businesses and individuals seeking to achieve their financial goals in India like availing MUDRA loan.
Factors Influencing Term Loan Approval
Here are the key factors that influence term loan approval in India:
Credit Score and History
- A strong credit score and positive credit history demonstrate the borrower’s creditworthiness and ability to manage debt responsibly.
- Lenders closely evaluate the borrower’s credit profile to assess the risk involved in approving the loan.
Financial Stability
- Lenders assess the borrower’s financial stability by analysing factors such as profitability, cash flow, financial statements, and revenue.
- A financially stable business with a proven track record is more likely to secure favourable loan terms.
Collateral
- Providing collateral, such as assets or property, as security for the loan can improve the chances of approval and lead to better terms.
- Collateral reduces the lender’s risk and demonstrates the borrower’s commitment to repaying the loan.
Loan Purpose
- The purpose of the loan is a crucial factor in determining the terms and conditions.
- Loans for specific purposes, such as business expansion or equipment purchase, may have different eligibility criteria and terms compared to working capital loans.
Loan Amount
- The loan amount can influence the terms of the loan, with larger amounts often requiring stricter eligibility criteria and terms.
- Smaller loan amounts may come with more flexible terms and conditions.
Loan Tenure
- The repayment period or loan tenure affects the loan terms, with longer tenures potentially leading to lower monthly instalments but higher overall interest costs.
- Lenders may prefer shorter loan tenures as they pose lower risk.
- Industry and Business Model
- The borrower’s industry and business model are also considered by lenders when evaluating loan applications.
- Lenders may have specific preferences or restrictions based on the industry’s risk profile and the borrower’s business model.
Why Opt for Lendingkart for Best Financing Options?
Lendingkart offers a range of benefits that make it an attractive choice for businesses seeking financing options like business loans. With a superfast processing time of just 72 hours, Lendingkart provides quick access to funds without requiring collateral. The platform offers flexible loan tenures, minimal documents, and low interest rates, making it an ideal choice for small and medium-sized enterprises (SMEs). Additionally, Lendingkart’s commercial loan eligibility calculator helps businesses check their eligibility criteria and documents required for the loan process. With a strong reputation and being trusted by over 3,00,000 businesses across 4100+ cities, Lendingkart is a reliable partner for businesses seeking financing solutions. Whether it’s MSME loans or working capital loans, Lendingkart is there for you.
Frequently Asked Questions
A term loan is a type of loan where a lender provides a borrower with a specific amount of money for a predetermined period, known as the loan term. It involves a fixed repayment schedule and a set interest rate.
The three types of term loans are:
- Short-term loans (less than 1 year)
- Intermediate-term loans (1 to 5 years)
- Long-term loans (more than 5 years)
Unlike term loans, credit card (CC) loans are revolving credit facilities that allow borrowers to access funds up to a pre-approved limit. Term loans have fixed repayment schedules and interest rates, while CC loans have variable interest rates and flexible repayment options.
Companies with a minimum turnover of INR 10 lakhs are eligible for term loans. The applicant should be between 22 and 65 years of age. Salaried professionals, self-employed persons, small businesses, manufacturers, trusts, traders, and artisans are also eligible for term loans.
NOTE: No processing fees are being charged by Lendingkart before disbursement of the loan amount. Any individual claiming otherwise must not be entertained. Please report such activity on 