Term loan are loans offered by banks and financial institutions to borrowers who will have to repay the amount in a specific repayment schedule with floating interest rates. Term loans are generally offered for businesses.
Term loans are borrowed for the operations of small business units; it is not a personal loan. The loan amount is not always issued as a lump sum amount but in specific installments ensuring the growth of the business. The special feature of the loan is the moratorium period which allows the borrower to pay the monthly installments after the stabilization of the business. This does not mean that the interest is not generated but gets accumulated and can be paid later. During the moratorium period the borrower will have to repay only the interest on the credit, the repayment of principal along with the interest can be made after the moratorium period
Term loans are classified into two board categories namely intermediate loans and long term loans. Intermediate loans are loans which has maturity period less than three years. The intermediate loans are expected to be paid on a monthly installment basis. Long term loans are loans offered for a time period of more than three years, its maturity period ranges between three to ten years. Long term loans use business assets as the security for the term loans offered.