Loans are essential to starting a business, running it, growing it, and improving it over time. Any business will likely need a lot of money, so any promoter entrepreneur will need to get a loan from a suitable lender to pay for the project.
Loans are what hold the lending system together. Most business loans are taken out for one-time needs and paid back in a set amount of time that both parties agree on. These loans are called “term loans” because they only last for a certain amount. You can use the term loan calculator to calculate the maturity amount.
What is a term loan?
Term loans are usually used to meet the one-time capital needs of a business for a set amount of time. The business may need money to buy land, a building, or plant machinery, among other things. Working capital may also be needed as part of a combined loan.
Both industrial and non-industrial borrowers who make, provide services, or trade can get the loan. Term loans are usually divided into short-term and long-term, based on how long they will last.
Types of Term Loans:
Based on how long the loan is for, a term loan can be put into the following categories:
Short-term loans are usually paid back within five years.
Long-Term Loans: The time it takes to pay back this loan is longer than five years and can go up to 30 years.
Term loans can be broken down further based on the kind of security the lender wants. Using this as a guide, a term loan can be further broken down into:
Secured: Some collateral must be given to get this. Most banks and NBFCs that give business loans look for good collateral.
Unsecured: These loans don’t have anything to back them up as security. Most digital platforms that help businesses get loans to offer unsecured loans that can be up to Rs. 2 Cr in size, as is the case with Lendingkart. Most of the time, though, these are short-term loans that must be paid back in 2 years.
The popularity of term loans:
Most of the time, when we talk about loans, we mean business loans. But an essential part of retail banking has to do with term loans. These are given to certain people for specific reasons. Before we get into the details of term loans generally, let’s look at the different types for consumers and businesses. The example of a term loan given below is not all there is to know about them, as there are likely other types with different features. Lendingkart, for example, has different kinds of business loans, including ones for SMEs, MSMEs, and women entrepreneurs.
Example of a term loan for a store:
Home loans are typically long-term loans given to individuals or groups who want to buy a home. It takes to pay back these loans is usually between 15 and 30 years.
Education Loan: This loan is given to people who want to go to college, and the terms are very flexible. For loans up to Rs.4L, most banks do not ask for collateral. The loan has a grace period, and repayment starts a year after the end of the course of employment or the end of the grace period, whichever comes first. The time to pay it back can be up to 7 years.
Car loans: If someone wants to buy a car, there are easy ways to get the money to pay for it. Most of the time, you have up to 5 years to pay back the loan.
Personal loans are loans that people can use to pay for things like a wedding, medical care, or any other unexpected expense. Most of the time, they are sold off in 3 years.
Example of a term loan for a business:
When it comes to business loans, there are a lot of programmes that fit the needs of different types of businesses, such as those that make things, provide services, or trade goods. So, the most common types of loans for businesses are both long-term and short-term loans. Here are some examples:
Financing equipment: Machines and equipment require a lot of money, and most banks have unique plans. The loan amounts are high, and depending on the terms, they can be paid back quickly or slowly.
Overdraft: It is a flexible loan that lets you get money as you need, up to the maximum of the sanctioned limit and your drawing power. This loan also comes in cash form. Most of the time, these loans are secured with collateral.
Working capital loans: Every business needs money to keep running and do daily work. When cash flow isn’t enough, this loan comes in handy. It’s meant to be paid off quickly, usually within a year.