Description

Term Loan is a ‘term’ given to the availability of the partial or full financing facility for the purpose of acquisition – whether it's for the machinery, land, building material or any other asset for the growth and expansion of a business unit. Most of the banks often provide this facility for the purchase of second-hand machinery or equipment.

Most of the businesses that look forward to such loans are the small and medium enterprises, which require a continuous flow of capital in and out of business. To facilitate them in carrying out their operation without any hindrances, banks and NBFCs offer term loans that are meant to put in use in any field of operation related to business.

Top Bank/NBFCs offering Term Loans in India

As per the recent efforts made by the Government of India to boost the participation of Small and Medium Enterprises in the overall economic growth of the country, various schemes have been put in place in order to increase capital adequacy for various borrowers. 

Here is a list of top lenders that provide hassle-free term loans:

Bank Name

Loan Amount

Rate of Interest

State Bank

Up to ₹ 25 Lakh

8.25% onwards

HDFC Bank

Up to ₹ 40 Lakh

11.90% onwards

Axis Bank

₹ 50,000 to ₹ 15 Lakh

12% to 24%

Citibank

Up to ₹ 30 Lakh

10.50% to 18.99%

ICICI Bank

Up to ₹ 40 Lakh

10.99% to 18.49%

Kotak Bank

Up to ₹ 2 crore

13.00% onwards

IndusInd Bank

Up to ₹ 15 Lakh

15.99% to 21.00%

Bajaj Finserv

Up to ₹ 30 Lakh

Starts at 17.99%

Tata Capital

Up to ₹ 50 Lakh

18.00% onwards

Capital Float

Up to ₹ 5 Lakh

16.00% to 24.00%

 

Features of a Term Loan

Term Loans are very similar to a personal loan availed by an individual in terms of the utilization of loan proceeds, the flexibility in repayment schedule and many others. 

Here are some prominent features of a Term Loan:

  • Flexible Repayment Tenure
  • Easy EMI options
  • Minimal Documentation
  • Flexible Eligibility criteria
  • Lower cost of Loan

Types of Term Loan

For most of the borrowers, choosing the most suitable loan according to their needs is a task in itself. Picking the one most feasible according to the requirement of funds might save a decent sum of money for the borrower. 

The three major categories of term loans are:

  1. Short Term
  2. Medium Term
  3. Long Term
  • Short Term Loan –  Short term loan is the most ideal choice for those who seek a smaller amount of funds for the day to day activities and to cover overall working capital requirements. The rate of interest being charged on these loans is high as the repayment period is short and the amount of loan provided is also smaller. 
  • Medium Term Loan – A medium-term loan is a balanced product which provides a decent amount of loan for a period of up to 5 years. A loan like this might help a borrower at a time when they require to revamp an existing showroom or to invest in a specific asset that might reap good returns over a period of time. 
  • Long Term Loan – Long term loans are offered to stable and long-running businesses, as these loans are provided for long term purchases like buying a property, establishing a new factory or maybe some other. The rate of interest charged on the loan amount is less as compared to the other two, as the repayment is scheduled over a span of 5 to 10 years.

What are the various examples of Term Loans?

For INDIVIDUALS

  • Home Loan – It is one of the most frequently availed loans around the world. By availing a home loan, an individual or a group can purchase a residential property and the repayment goes along for over a decade or maybe for 20 years. 
  • Education Loan – This type of loan is provided to individuals who are planning to take up education abroad or within the country and can not bear the expenses of tuition and lodging while they study. 
  • Car Loan – Anyone who aspires to buy their dream car or maybe another car for their family, can use this loan to benefit the purchase. In general, such loans are repaid over a period of 4 or 5 years.
  • Personal Loan – A personal loan is a product which can be used for various purposes like wedding preparations, medical emergency, to dispose of existing credit card debt and others. The repayment schedule for such loans is quite flexible and the interest rates are high.

 

For BUSINESSES 

  • Equipment Financing – Most of the machines that are bought for large manufacturing units are capital intensive and require a good sum of money. Such loans are repaid via short- and long-term methods depending on the terms of the agreement.
  • Commercial Vehicle Finance – As the transportation for passengers and cargo goods from one place to another is critical to mankind, many transporters avail commercial vehicle loans in order to increase the size of their fleet and increase the overall capacity.
  • Overdraft – Overdraft is a facility provided by the means of a current account, wherein a borrower can withdraw funds as and when required and deposit the amount back within a particular cycle. The limit is sanctioned beforehand and the account only disburses the amount approved by the bank.
  • Working Capital Loan – As the name suggests, all businesses large and small require a significant amount of capital to carry out daily operations, these activities might be small but they require a continuous flow of capital in business in order to keep the operations going. Whenever the cash-flow is surplus, the same can be repaid by adding a hefty interest amount to it.

Read More:- Apply for Working Capital Loan

Term Loan Interest Rate & Charges

All the term loans that are made available to the borrowers attract a hefty rate of interest as these loans are quite flexible in terms of the eligible loan amount and the repayment tenure. 

The generalized rate of interest and other charges as applicable on a term loan are given in the table below:

Particulars

Key Details

Rate of Interest

8.25% to 24.00% p.a.

Processing Fee (TL)

Up to 2.00% of the Loan amount + Tax

Eligibility Criteria for a Term Loan

Term Loans are the secured loans offered to various individuals and entities for urgent capital requirements. For different lenders, the eligibility criteria are very generic. There are certain criteria that need to be fulfilled in order to apply for a loan. The main points of criteria are given below:

  • Applicant must be between 25 and 60 years of age
  • Age of business must be older than 3 years 
  • Applicant must provide the ITR for last 1 year or more

Documentation required for Term Loan

Most of the loans that are provided under the term loan category are valued higher in terms of overall security and process of loan. Most of the lenders require a certain set of documents in order to apply for a term loan. These documents are an important part of the entire process as the lenders verify and assess the creditworthiness of an entity or an individual.

The list of documents required is as following:

Particulars

Details

Type

Self-employed Professionals

Business Owners

Proof of Identity

(Any of these)

Copy of Passport/Driving License/Copy of Aadhar Card/Copy of Voter ID Card

Copy of Passport/Driving License/Copy of Aadhar Card/Copy of Voter ID Card

Proof of Residence

Registered Rent Agreement (Min. 1 year of stay)/Utility Bills (For the last 3 months)/ Life Insurance Policy/ GST Certificate

Leave and License Agreement/Ration Card/Trade License/ Utility Bills (For the last 3 months)/ GST certificate

Proof of Incomes

  1. ITRs for the last two Assessment years
  2. Audited Balance Sheet for the last 2 years (with schedules)
  3. Profit and Loss Account Statement for the last 2 years
  1. Business Current Account Statements (Latest 6 months bank passbook)
  2. ITRs for the last two years along with income computation
  3. Audited Balance sheet and P/L accounts

Loan Agreement

The duly signed Loan agreement document

The duly signed Loan agreement document

Repayment

Post Dated Cheques (PDCs)/ Standing Instruction Request Form/ ECS Form/ Security Cheques duly signed

Business continuity proof (Trade license/ establishment), Standing Instruction Request Form

Qualification Proof

Qualification or Registration Proof required for Practicing Doctors/Architects/Chartered Accountants/Company Secretary/ICWA and others

Sole proprietorship declaration/ Certified copy of partnership deeds/ Copy of MOA, AOA/ Details of partnership deed and income statements

 

How to apply for a Term Loan online?

While you do your Term loan application through Afinoz App, one needs to follow the procedure given below:

  • Check various Term Loans on offer and check eligibility with the online loan eligibility calculator at Afinoz.com. Simply visit Afinoz.com, fill in a few easy details and get an instant and accurate assessment of your personal loan eligibility
  • Check your Term loan EMI with the business loan EMI calculator at Afinoz.com. This will help you to know the exact amount you need to pay every month towards the repayment of your loan
  • Check the documentation required for your term loan application. Whether you are salaried or self-employed, applying with the proper set of documents will enhance your chances of getting your loan approved in the least possible time

How does a term loan work?

All around the globe, term loans are known as an easy way to avail instant funds for anyone who is either looking to expand their business, establish a new one or any sort of requirement related to family or a medical emergency. Term loans require less documentation as they are always backed by a collateral/security in order to secure the amount the loan for both the lender and the borrower. 

Here is how a term loan works in its entirety and the key points that define & decide the terms of a term loan:

  • Pre-fixed Amount of Loan – Term loan is only offered for a fixed amount; the loan amount may vary on the basis of the need for a term loan. The lender’s overall score on the criteria for eligibility is also important in deciding the loan amount to be sanctioned.
  • Fixed Repayment Tenure – The borrower shall repay the loan amount in easy instalments throughout the tenure as fixed while availing the loan. The tenure of repayment determines the Business loan as a short, mid or long-term loan.
  • Optional Collateral – The need to pledge a collateral/security for the loan amount entirely depends on the loan amount required by the borrower. As the personal loan, a business loan is unsecured, home and auto loans are termed as secured term loans which require collateral.
  • Flexible Interest Rate Options – Most of the term loan offers are made available with either fixed or floating rate of interest. Most lenders leave it up to the borrower to make a decision on whether to avail a fixed rate or a floating rate of interest. 
  • Fixed Repayment Schedule – Like all other loans have a specified repayment schedule which is either monthly, quarterly or half-yearly, every term loan has a repayment schedule and the borrower is obligated to pay the instalments according to this schedule. Each and every instalment comprises of both principal and the interest calculated on it.

FAQs

Q1 Can I get a term loan to expand my business?
Yes, most of the banks and non-banking lenders offer easy term loans for business. If the amount is not much, you can easily apply online and get your loan disbursed within a day. However, if the loan amount is higher, it would require some collateral to be pledged.
Q2 What is the rate of interest for term loans in general?
In general, there is no specific limit to the rate of interest being charged on the term loan offered to you. The interest rate might start anywhere near 10.99% per annum and can range as high as 34% per annum depending on the loan amount and the period of repayment.
Q3 How much amount of term loan can I get to start a new business?
The loan amount entirely depends on the lender and the borrower. There are various factors involved while a lender decides the eligibility of a borrower in terms of business requirements. However, a minimum of ₹ 50,000 can be availed from any lender to start a new business of a small scale.
Q4 What is the example of a term loan?
A term loan can easily be defined as any amount being offered by a lender to a prospective borrower in order to utilize the proceedings for various purposes. The lenders charge a specific percentage as the rate of interest is payable over a pre-specified period of time in order to repay the loan.
Q5 Is a mortgage a term loan or not?
A loan is a specific amount of money availed from a lender by paying interest each month or in a quarter. Such loans are provided for a specific term, in view of this, even a mortgage has a specified term of either 10, 20 or 30 years, which makes a term loan.