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A term loan is a commercial credit that has fixed repayment conditions, such as a predetermined loan period and interest rate. Borrowers must return the loan in regular monthly installments or EMIs until the debt matures.

EMIs are composed primarily of two components: the principal amount and the interest, calculated using the effective interest rate.

How does a Term Loan Work?

Due to various factors such as predetermined loan amount and payback schedule, and interest rates, these loans are one of the most efficient types of loans available to businesses. Numerous factors must be recognized for the firm to grasp how term lending operates. A term loan has five components: the loan amount, the interest rate, the loan period, the repayment schedule, and whether the loan is secured or unsecured.

This loan's repayment value is fixed. This amount is determined by the type of loan chosen and the borrower's eligibility. The interest rate on this company loan might be fixed or fluctuating. Whichever rate the borrower chooses is entirely up to the borrower. Additionally, the loan length is predetermined. Across the loan period, the firm must return the loan amount in EMIs by the set repayment plan.

Term Loan Example: Retail

Working Capital Loans: Businesses who want immediate funding to sustain cash flow or pay day-to-day company expenses choose working capital loans. Working capital loans are typically referred to as short-term loans since they must be returned within 12 months after loan disbursement.

Overdraft: It is another type of loan in which the financial institution establishes a credit limit based on the requirement and charges interest on the amount utilized, rather than on the entire given withdrawal limit. The payback period might be as little as one month or as long as twelve months. Each year, the borrower must renew the limit with the lender.

Equipment Financing: Businesses and companies can utilize this sort of loan to finance equipment or vehicles used for a variety of activities, including agriculture, farming, commercial transportation, and building. The value of the equipment finance loan may vary between Rs. 1 lakh and Rs. 10 crores. The rate of interest on a term loan is determined by the individual's background and business type.

FlexiLoans Term Loan Features

Interest Rates Reduced

When taken out for a longer period, term loans provide cheaper interest rates than those with a shorter term. Additionally, interest rates are fixed and do not fluctuate over the life of the loan.

Enhanced Flexibility

Term loans provide significant flexibility. There is much room for negotiation on everything from the period to the principal and interest rate. The higher your business's credit score, the more leeway you have with loan conditions.

Increases Cash Flow

When a firm obtains a term loan, it effectively frees up cash flow for other purposes, as the loan amount covers the funding requirements for big capital expenditure. For example, a business can obtain a term loan to finance a recruiting round. This will cover the expenditures associated with the time required to educate employees before they can begin contributing to the bottom line.

Speedy Approval

Generally, short-term loans are authorized within a day or two. Even long-term loans do not take an extended period to approve. As a result, term loans are a considerably faster method of funding when compared to other possibilities.

Preserves Ownership Equity

Because term loans are a type of debt financing, they do not affect the corporation's shareholder equity, which stays intact. Furthermore, unlike equity funding, business owners do not have to give any influence over operations.

• Cheap: It is a less expensive source of medium-term borrowing.
• Tax Advantage: Interest on a term loan is a tax-deductible expense, and hence there is a tax advantage on interest.
• Adaptable: Term loans are loans that are negotiated between borrowers and lenders. As a result, the terms and conditions of these types of loans are not restrictive, allowing for some degree of flexibility.

From the Lender's Perspective:

• Assured: Banks and other financial organizations give term loans in exchange for collateral—thus, term loans are secured.
• Regular Sources of Income: The borrower is required to pay interest and repay principal regardless of its financial situation—this ensures the lender receives a regular and constant revenue.
• Adaptation: Financial institutions may require borrowers to convert term loans to equity to avoid default. As a result, they might get the authority to manage the company's affairs.

Term loans are a key component of project finance. The following are some of the benefits of term loans:

From the Borrower's Perspective

• Cheap: It is a less expensive source of medium-term borrowing.
• Tax Advantage: Interest on a term loan is a tax-deductible expense, and hence there is a tax advantage on interest.
• Adaptable: Term loans are loans that are negotiated between borrowers and lenders. As a result, the terms and conditions of these types of loans are not restrictive, allowing for some degree of flexibility.

From the Lender's Perspective:

• Assured: Banks and other financial organizations give term loans in exchange for collateral—thus, term loans are secured.
• Regular Sources of Income: The borrower is required to pay interest and repay principal regardless of its financial situation—this ensures the lender receives a regular and constant revenue.
• Adaptation: Financial institutions may require borrowers to convert term loans to equity to avoid default. As a result, they might get the authority to manage the company's affairs.

While applying for a term loan used to be a long procedure, it has now been simplified and made entirely online. You are not forced to shop around for the best interest rate, nor are you forced to wait for clearance or the submission of documents.

All you need to use is a term loan application form and, while applying, it requires soft copies of your documents, a reliable internet connection, and a solid credit score. The entire process should take no more than a few business days, during which time you will see a reflection of the money that has been moved to your account. There are four methods to check term loan eligibility:

• Online Application: Visit the FlexiLoans website and complete the application process by entering all necessary details accurately. FlexiLoans will use this information to determine your business loan eligibility.
• Online submission of required documents: Upload all necessary documentation, including identification documents, current account bank statements, and business identification papers.
• Credit Analysis: We'll evaluate the business's performance and operations to determine the amount of money you're willing to borrow and the applicable interest rates. Our loan officers will assist you in comprehending the offer and making an informed choice.
• Loan Disbursement: After checking the paperwork and accepting the loan, FlexiLoans will exchange the loan agreement. Within 48 hours of signing the contract, funds are transferred to the applicant's account.

FlexiLoans was started with an endeavor to solve the problems that small businesses face in accessing Quick, Flexible and Adequate funds for growing their businesses. Our vision is to give “Loans at a click”. We are the leaders in using technology and risk models that focus on alternate/surrogate methods for scoring customers.