Capital, Land, Machinery, and Labor – are the essentials to start a business. Capital, being the one that facilitates the sourcing of other requisites, is the foremost in the list. If you can’t afford the investment, a term loan could be your remedy.
Arranging capital to scale up your business could appear challenging but you can fulfill this requirement by applying for loans that are just fit for the purpose. A term loan is the best suited for established businesses. Once you get it, a loan might help you purchase equipment, acquire fixed assets, meet regular working capital needs, and fulfil many more requirements. Loans could be procured through banks, vendors, investors, or from personal contact sphere.
Talking of the term loan, the “term” refers to a fixed or specific period. A term loan is a secured loan that is meant for short, intermediate and long durations ranging from a few months to 10 years, but in some cases, this loan could be extended to a period as long as 30 years. The rate of interest charged may be fixed or floating rate. In a fixed rate of interest, the rate is “locked-in” over the entire tenure of the loan. On the other hand, the floating rate of interest implies that the rate is revised every quarter or so till the loan is repaid.
Let’s look at the finer points of differentiating the various term loans based on the duration.
TYPES OF TERM LOANS: According to your finance needs, the duration of your term loan can be categorized as the following:
- Short-term: These are usually taken for less than 12 to 18 months. This loan meets your business’s day-to-day activities such as working capital requirements and maintaining cash flow. The repayment period is shorter but the rate of interest is generally high.
- Intermediate-term: Duration of this term loan ranges between 2 to 5 years. An Intermediate term loan is a combination of short-term and long-term loans. Availing a medium-term loan for renovation or repairing a fixed asset is more favorable than cashing out the expense in full.
- Long-term: This refers to loans that are taken for more than 5 years. Such loans are generally taken for the purchase of fixed assets or equipment and is secured in nature. When you take a long-term loan, it is credit-based. Having a good credit score could help you in getting a term loan easily.
For further guidance related to term loans, you can reach out to Capital9 team of finance professionals.