Term Loan Definition
A term loan is a financing option for businesses. It is provided for a set period (1 to 8 years or more) based on the business's creditworthiness. The loan may require collateral such as valuable assets, or it may be unsecured with higher interest rates.
These loans are used for diverse purposes like working capital, expansion, or acquisitions. While considering a term loan, businesses should compare rates, repayment schedules, fees, and collateral requirements.
Understanding Term Loans
Businesses seeking cash to purchase equipment, real estate, or other assets apply for term loans. Some use term loans for day-to-day operations.
To obtain a term loan, business owners must demonstrate their creditworthiness to the lender. Once approved, they receive a lump sum and repay it over a specified period, monthly or quarterly.
Term loans can have fixed or variable interest rates with a set maturity date. The repayment schedule matches the asset's working life funded by the loan. Collateral secures term loans, and lenders often require a thorough approval process to minimize default risk.
- Short-term Loans
- Intermediate-term loans
- Long-term loans