Definition, Characteristics, and Types of Term Loan

Does your business need capital for expansion, equipment purchase, or working capital management? If so, a term loan could be the ideal financing solution, offering structured repayment and financial predictability.

In India, businesses are increasingly leveraging credit to fund their growth. As of September 2024, total loans in the country surged to a record $2,037 billion USD, reflecting the rising demand for structured financing options.

Whether you want to scale operations, invest in assets, or manage cash flow efficiently, term loans offer stability and flexibility. In this article, we’ll cover what term loans are, how they work, and what they bring to businesses like yours.

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What are Term Loans?

A term loan provides businesses with a lump sum upfront, repaid in fixed installments over a set period at either a fixed or floating interest rate. Lenders typically offer these loans to established small businesses with strong financial records. Some may require collateral or a down payment to lower repayment costs.

For businesses seeking non-dilutive funding, term loans offer structured financing with predictable repayment, making them a reliable choice for long-term planning.

How Do Term Loans Work?

• Fixed Loan Amount: Borrowers receive a predetermined sum based on eligibility.
• Repayment Tenure: Loan tenure is short, medium, or long-term, repaid via EMIs.
• Collateral Requirement: Loans may be secured or unsecured, depending on lender criteria.
• Interest Rate Options: Borrowers choose between fixed or floating rates.
• Repayment Schedule: Regular EMIs include both principal and interest.

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Types of Term Loans

1. Short-Term Loans

Businesses use short-term loans to cover urgent expenses like operational costs and cash flow gaps. Lenders approve them quickly, but they come with higher interest rates due to the short repayment period. 

Also read: Apply for Instant Short-Term Loan Online at Lowest Rates

2. Intermediate-Term Loans

With a 1 to 3-year tenure, these loans fund larger purchases like equipment or expansion. They feature moderate interest rates and structured repayment plans, making them suitable for businesses looking for stable, mid-term financing.

3. Long-Term Loans

These loans come with a tenure of more than 3 years and are typically used to finance major investments such as property or large-scale expansion. They usually have lower interest rates but may require collateral, making them suitable for businesses with strong financial stability. 

Also Read: Short-Term vs Long-Term Loans: Benefits and Differences

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Benefits of Term Loans

1. No Equity Dilution: Since term loans are a form of debt financing, businesses can raise capital without giving up ownership.
2. Cost-Effective Financing: Term loans provide a cheaper borrowing option than alternative financing methods. Competitive interest rates make them a practical choice for growth.
3. Tax Benefits: The interest paid on a term loan is tax-deductible, helping businesses reduce their tax burden and improve cash flow management.
4. Flexible Loan Terms: Unlike rigid financing options, term loans allow the negotiation of repayment schedules, interest rates, and conditions.
5. Predictable Repayments for Lenders: Borrowers make regular payments toward the principal and interest, ensuring lenders receive a steady income stream while minimizing financial risk.

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How to Apply for a Term Loan?

1. Sign Up on Recur Club: Create an account on our platform, where a dedicated capital expert will guide you through loan structures tailored to your business’s stage and financial profile.
2. Submit Financial Details: Provide bank statements, GST filing data, compliance reports, and other key financial metrics to assess eligibility. Sync your financial software with the platform to eliminate manual uploads.
3. Compare Loan Structures: Once approved, explore different debt options and compare their terms with the help of your capital expert. Recur Club also negotiates with lenders to secure terms that best suit your business needs.

Apply Now!

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Conclusion

A term loan is a valuable financing tool for businesses needing capital for growth, expansion, or operational stability.

Recur Club simplifies the process of securing term loans by providing businesses with tailored debt solutions, competitive interest rates, and access to a vast network of 125+ lenders. 

Whether you need short-term or long-term financing, our capital experts help secure funding that aligns with your business goals. We fund businesses across industries such as SaaS, D2C, healthcare, logistics, fintech, and more.

Talk with us today to explore the best funding options for your needs!