Learn about what is Term loan, Types of term loan, Short term loan, Medium term loan, Long term loan and their usage
What Is Term Loan
A Term Loan is a debt that is accepted by the business for the purchase of fixed assets. The loan is repayable in a time period of 3-10 years. These are offered by banks or different financial institutions.
Types of Term Loan
There are primarily 3 types of term loan:
- Short Term Loan
- Medium Term Loan
- Long Term Loan
Short Term Loan
A short term loan is the best option if you are in urgent need of cash. These loans usually require only your recent bank records and personal identification. Many lenders provide quick approvals and funds within a few days.
Short term lenders don’t care about collateral and how you plan to use the money, unlike traditional loans. Some lenders require a personal guarantee or blanket lien, while others don’t. There are many options to get the money you need quickly.
Short Term Loan Usage
A short-term loan can be a great option for many people, but it should not be used as a last resort. These loans have interest rates up to 400% APR so borrowers should only consider them for emergencies.
Before you sign on the dotted line, be sure to fully understand your options if you’re looking for a short-term loan. If you really need the money right away, you’ll likely need your credit card to secure it. A short term loan is quicker than a traditional bank loan.
These loans can be obtained by people with poor credit. Because they have a longer repayment term than traditional banks, they are less likely to default on payments. You can always find another loan if you are unable to repay your loan. The short term loan period is between 6 to 18 months, as an example, a short term loan can be a great option for temporary financial difficulties.
Medium Term Loan
Small businesses have many options for obtaining a medium term loan. This loan is flexible and can be used to fund many different purposes. A variety of reasons make medium term loan beneficial, such as working capital, new inventory, or general cash flow.
This type of loan usually has regular monthly payments and fixed interest rates. The range of a medium term loan can be up to $6.5 billion. This loan is ideal for companies with good credit ratings and a track record of profitability.
The medium term loan period is above 1 year and up to and inclusive of 3 years. These funds can be used for expansion, hiring additional staff, or opening a second location. The applicants must have good credit and be in business for at least one calendar year. They must also have a good track record in business. They should not be able to use a medium-term loan as permanent funding, but as working capital in a production sector.
Medium Term Loan Usage
A medium term loan can offer up to $500,000 capital. This loan is a hybrid of a short term loan or a long term loan. It is great for small businesses that have stable cash flows, as the payback period can reach up to five years. Trade credit sources and commercial banks are good options if you’re in search of a business loan. A medium term loan is a good option if you plan to invest in a building.
Long Term Loan
Long term loan is called a small business loan and these loans are paid off over a longer period than three years. The long term loan period could be between 3 and 30 years. The most common form of credit in financial services is long-term loans.
Home loans and auto loans are becoming more popular thanks to the ease of banking and technology. These loans typically have a large loan amount and can be spread over a long repayment period. The features of long term loans vary depending on the various reasons for which they are taken. Customers who wish to repay their loans earlier than the agreed time frame will almost always be able to pre-pay.
Long Term Loan Usage
Long term loans include home loans, car loans, and personal loans. You can get long-term loans to help you with any business or personal needs, such as buying machinery or purchasing a home. Lending banks will approve long-term loans based on a regular income. Applicants must have a steady source of income and collateral.
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