Term Loan: Know Definition, Eligibility, Rates & Term Loan Types

A term loan is a financial arrangement where a lender provides a borrower with a specific amount of money for a predetermined period, known as the loan term. Unlike revolving credit facilities such as credit cards or lines of credit, a term loan involves a fixed repayment schedule and a set interest rate. This structure offers borrowers predictability in terms of repayment and interest costs, making it a preferred choice for both individuals and businesses with well-defined financing needs. In this article, we’ll explain the intricacies of a term loan in India, its features, and more.

Features Of Term Loan

Here are the features of term loan:

1. Fixed Repayment Schedule

Term loans require borrowers to repay the borrowed amount, along with interest, in fixed installments over the loan tenure. 

2. Interest Rate

Unlike variable interest rates that fluctuate with market conditions, term loans typically have fixed interest rates. 

3. Loan Term

The loan term, or the period over which the borrower repays the loan, can range from a few months to several years.

4. Collateral

Depending on the amount of the loan and the borrower's creditworthiness, a term loan may require collateral as security.  

Types Of Term Loans:

There are three types of Term loan: Short-term, Intermediate, and Long-term loans, which are categorized based on their repayment periods or maturity dates. The duration of each type of loan corresponds to how quickly the borrower is expected to repay the borrowed amount, along with any interest or fees.

1. Short Term Loan:

Short term loans have a relatively brief repayment period, usually ranging from a few weeks to a year. These loans are often used to address immediate financial needs, such as covering unexpected expenses, managing cash flow gaps, or taking advantage of short-term business opportunities. 

2. Intermediate Term Loans:

Intermediate term loan has a repayment period that falls between short-term and long term loan. These loans generally have repayment periods ranging from one to five years. Intermediate-term loans are often used for purposes such as purchasing equipment, making business expansions, or funding medium-sized projects. 

3. Long Term Loan:

Long term loans have extended repayment periods, often exceeding five years. These loans are used for major investments or expenses, such as buying real estate, funding large business projects, or acquiring significant assets. 

The minimum tenor that SMFG India Credit provides is 12 months which can be extended up to 60 months for unsecured loans and 180 months for secured loans.

Documents Required For A Term Loan:

The documents needed for a term loan can vary based on the lender and the borrower's profile. Commonly required documents include:

1. Proof of Identity: Valid identification documents and PAN card for company, firm, and individual.
2. Proof of Address: Documents verifying the borrower's residential address, such as Voter ID Card, Ration card, passport, or driver's license.
3. Account Statements: Latest Account statements of 6 months.
4. Proof of continuation: ITR/ Trade license/ Establishment/ Sales Tax Certificate
5. Other documents: Sole proprietorship declaration or certified copy of the partnership deed, certified true copy of the MOA/ AOA (certified by company director), and Board resolutions.

Eligibility Criteria For A Term Loan

Please ensure that you meet the following eligibility criteria to obtain a term loan:

1. The applicant should be between 22 and 65 years of age.
2. Enterprises with a minimum turnover of INR 10 lakhs, a minimum annual income of INR 2 lakhs, and evidence of profits for the past two years.
3. Individuals should have been engaged in their current business for at least 3 years, with a total of 5 years of business experience.

Conclusion

A term loan serves as an essential bridge between financial aspirations and reality, offering a structured approach to borrowing for a wide range of purposes.

At SMFG India Credit, we provide that bridge through our term loans tailored to your needs. Our application process is 100% online and we provide you tailored term loans starting from INR 50,000 to INR 75,00,000*. Choose your loan tenure as per your convenience from 12 to 48 months.