Term loans are loans that are of a fixed amount distributed by the banks or NBFC to entrepreneurs. At the same time, entrepreneurs can use it for capital expenditure and expansion of business with fixed and floating rates of interest. It is a good way of quickly increasing capital with minimal risk involved. Flexibility in repayment, minimal documentation, and quick disbursal of funds are the benefits of these loans.

In the business aspect, term loans can be used to maintain the cash flow or to meet day-to-day business expenditures.

Considering the term loan as a source for your business plan/project report, this guide is useful to look forward to:

Types of Term Loans:
How to choose the right Term Loan for your Business?

Borrowers can classify term loans based on the tenure for which they borrow them; and also calculate the time for the asset to provide a return. Here’s what you need to know:

  • Short-term loan :

The loans mature within one year and 24 months. In the production industry, companies can use it as working capital for inventory purchases. It helps to boost the flow of cash in the business.

  • Intermediate-term loan :

The period for such loans could vary from 2 years – 5 years. These loans could be critical for the company’s cash flow. Typically, companies that are new and have established afresh may need such intermediate-term loans.

  • Long-term loan :

These loans can run anywhere between 3 years – 7 years and sometimes the maximum tenure will be 10 years. The company offers its assets as collateral. The repayment could be either monthly or quarterly as per the company’s profit or cash flow recognition. These loans are most appropriate for large construction businesses, purchasing heavy equipment, buildings, etc.

 Other than these, few other things to be considered in terms:
Term Loans Category
  • Secured Loan:

 Collateral security is required to be submitted to the lender by an applicant if he/she wants to avail secured loan from banks or NBFCs. Collateral submitted can be in the form of equipment, machinery, raw materials, stock, or residential/commercial properties.

  • Unsecured Loan: 

Business loans offered by most financial institutions are unsecured loans that do not require any collateral or security to be submitted to the lender. The interest rate offered by banks and NBFCs for unsecured loans is comparatively on the higher side.

Who can apply for a Term Loan?
  • Age Criteria: The minimum age of the applicant should be 21 years at the time of loan application and the maximum should be 65 years at the time of loan maturity.
  • The applicant should be an Indian citizen.
  • Applicants should possess a good credit score.
  • Applicants should maintain a regular source of income.
What Documents Required to Apply for a Term Loan?
  • Passport-sized photographs.
  • Project Report/ Business Plan.
  • Filled application form.
  • KYC Documents (Identity, Address, and Age Proof) – Passport, PAN card, Aadhar Card, Voter’s ID card, Driving License, Utility Bills (Electricity, Telephone or Water), etc.
  • Business address proof: Property papers, rent agreement, or lease document.
  • Income Proof: Last 6 months’ salary slips.
  • CIBIL report, if required by the lender.
  • Last 12 months’ bank statement.
  • ITR, Sales Tax report, Profit and loss statement of last 2 years.
  • Any other document required by the financial institution.

Once the applicant submits the application, the bank’s representative may contact them and will proceed with the bank formalities.

In the above list, a Business plan also known as a project report is a crucial document when applying for a bank loan. The bank uses this document to analyze the overall feasibility, risks, financial viability, and potential of a project. A well-crafted and convincing project report increases the chances of loan approval. With Finline you can craft a compelling project report in less than 10 minutes. That too in your language. All public and private sector banks working in India accept our reports. Click to create your project report.