Term loans are the standard commercial loan, often used to pay for a major investment in the business or an acquisition. The loans often have fixed interest rates, with monthly or quarterly repayment schedules and a set maturity date. These are provided for acquiring or constructing or installing or establishing capital assets, which will provide returns over a period of time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. Term loan usually involves an unfixed interest rate that will add additional balance to be repaid.

Bankers tend to classify term loans into two categories:

  • Intermediate- Intermediate-term loans usually run less than three years, and are generally repaid in monthly installments from a business's cash flow.
  • long-term loans- Long-term loans can run for as long as 10 or 20 years and include additional requirements such as collateral and limits on the amount of additional financial commitments the business may take on.

It is the best preferable option for small enterprises. As if the financial statement of the company are sound and willing to make a substantial down payment, you can receive financing with minimal monthly payments and total loan costs. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme provides a way for Entrepreneurs to obtain a bank loan of upto Rs.1 Crore without any collateral security.

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