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Term Loan : Overview

Term Loan is a loan borrowed for fixed amount over the fixed period of repayment and floating rate of interest. The borrower is offered a predefined schedule of repayment by the lending institution comprising of principal amount and interest thereon. Term Loan is secured by a collateral security. Term Loan facilitates the borrower to raise a stipulated amount one time and plan the business expenditure or investment or purchases on his or her own. Term Loan is normally preferred by small and medium scale businesses to meet the needs of working capital or to buy assets or infrastructure which is required to run the business on day to day basis. It may include purchase of machinery or buying an office or workshop premises The maturity period or term is between 1 – 10 years.

The term Loan can be availed to :

  1. Purchase of Fixed Assets :
    The term loan can be used to purchase fixed assets like premises, plant & machinery etc. The usage or performance of assets increases the business performance and hence the profit and makes the repayment of the loan easier. Even the term loan is settled the assets procured continue the productivity as asset life span is certainly longer than the term loan span. If a premises is purchased then the value of premises is always appreciated and in that case the business leverages higher value of premises which further can be used to raise funds for business expansion or diversification.
  2. Switching of Higher Interest Loans :
    Many a time’s business owners opt to raise business loans at higher rate of interest. Such loans are processes and sanctioned faster but result in heavy burden interest. This interest payment becomes a fixed monthly expenses and starts leaking the profit. To arrest the growing rate of interest and penalties the higher interest loan can be switched to lower rate of interest loans or term loans. This way a borrower reduces the growing burden of interest on business loan and can save a considerable amount of money. It also benefits in maintaining the credit rating as the borrower closes one loan liability and opens another in form of term loan with lower rate of interest and easier repayment conditions.
  3. Mortgage Term Loan :
    A Term Loan can be availed by mortgaging a kind of security like home, office premises etc. This type of loan is borrowed for longer period of time that is 10, 15 or 20 years. The repayment of the principal amount and interest may be fixed in nature or it may vary over the course of repayment. The borrower may avail the revised rate of interest later and may be benefited by saving in interest.

Term Loan : Documents

The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting Term Loan Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis.

  • Address Proof : Latest Electricity/Telephone Bill or Receipt of Maintenance Charges or Valid Passport or Voter’s Identity Card or Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises.
  • Identity Proof : Valid Passport, PAN Card, Voter’s Card, Any other photo identification issued by Government Agencies.
  • Business Proof : VAT/CST Registration No. or MIDC Agreement or SSI Permanent Registration Certificate or Warehouse Receipts or Shop & Establishment Act Certificate or Copy of Lease Agreement along with the latest Rent paid Receipt.
  • Business Profile on Company’s Letterhead.
  • Partnership deed in case of partnership firms.
  • Certificate of incorporation, Date of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies.
  • Last three years Trading, Profit & Loss A/c. and Balance Sheets (duly signed by a Chartered Accountant wherever applicable).
  • Last one years’ Bank statement of the Firm.
  • If existing loan, then sanctioning letter and repayment schedule of the same.
  • Firm/Company’s PAN Cards.
  • Individual Income Tax Returns of the Individual/Partners/Directors for last three years.
  • Last one years’ Bank statement of Individuals, Partners, Directors .
  • SEBI formalities in case of listed companies.
  • Share Holding pattern of Directors duly certified by a Chartered Accountant.
  • List of the Existing Directors of the company from the Registrar of the Companies.
  • Copies of the Invoices of the Assets to be purchased .
  • The Life of the machinery approved by the authorized valuer in case of second hand or reused machinery is to be purchased .

Term Loan : Process

  1. Personal interview /discussions is held with the customers by the bank’s officials.
  2. Bank's Field Investigation team visits the business place/work place of the applicant.
    (All the documents submitted are Verified by the bank with the originals so as to ensure the authenticity of the same.)
  3. Bank verifies the track record of the applicant with the common information sharing bureau (CIBIL).
  4. In case of fresh projects the bank analyses the back ground of the applicant/firm/company and the Technical feasibility/financial viability of the project based on various parameters and also the existing market conditions.
  5. Depending on the size of the project the file is put up for sanction to the appropriate level of authority.

SANCTION AND DISBURSEMENT :

  1. On approval/sanction, the sanction letter, is issued specifying the terms and conditions for the disbursement of the loan. The acceptance to the terms of sanction is taken From the Applicant.
  2. The processing charges as specified by the bank have to be paid to proceed further with the disbursement procedure.
  3. The documentation procedure takes place viz.Legal opinion of various property documents and also the valuation reports.(Original Documents to title of the immovable assets are to be submitted)
  4. All the necessary documents as specified by the legal dept., according to the terms of sanction of the loan of the bank are executed.
Term Loan Overview | Term Loan Documents | Term Loan Process | Term Loan EMI Calculator |
NOTE :- The above criteria are generally applicable for all the banks, however some of the above criteria may vary from bank to bank(lender).

 
   
 
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