Types of Term Loans in India


A term loan is a bank loan provided to a company, with a fixed repayment tenure and often featuring amortization of principal. If this loan is in the form of a line of credit, the funds are drawn down shortly after the agreement is signed. Otherwise, the borrower usually uses the funds from the loan soon after they become available. Bank term loans are very a common type of loans.

These loans are of three types: –

Short-term Loans (up to two years) for various short-term requirements including bridge loan, Corporate Loan etc.

Medium-term Loans (more than two years to eight years) for business expansion, technology up-gradation, R&D expenditure, implementing early retirement scheme, Corporate Loan, supplementing working capital and repaying high-cost debt

Long-term Loans (more than eight years to up to 15 years) – Project Finance for new industrial/infrastructure projects Takeout Finance, acquisition financing (as per extant RBI guidelines / Board approved policy), Corporate Loan, Securitisation of debt

These loans are targeted for the business segments such as: –

  • PSUs
  • Manufacturing industry
  • Infrastructure projects
  • Power
  • Airports (brownfield)
  • Ports
  • Hotels
  • Urban infrastructure projects
  • NBFCs
  • Participation in Private Equity
  • Promoter funding

Medium Term Loans

Purpose of these loans is to increase the enterprise’s capital and to help in the improvement of current ratio and also for meeting genuine business requirements. This loan can also be utilised for repayment of other loans related to business purpose. This loan is provided for Micro, Small & Medium Enterprises as per Regulatory definition and all other entities with an annual sales turnover of Rs. 1/- crore to Rs. 150/- crores. This loan is only provided when a company has a good credit history. The loan amount can be up to 25% of the existing fund based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 25 Lakhs and maximum of Rs. 5 crores. The repayment tenure should not be exceeding 3 years, to be repaid in equal quarterly or half-yearly instalments. As security or collateral First charge / Equitable mortgage of fixed assets of the Company/firm or extension of existing first charge/ equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.25 can be provided.

Whenever you opt for a term loan, please keep in mind to compare the exact EMIs or amortization for the term loan, the tenure of the term loan and documents required for term loan by the banks to choose from which bank you want to take the loan. If a person asks for fees to get your loan sanctioned, never listen to that man. Always provide the document to one bank only and to an authorized vendor and authorized bank employee. Under any circumstances, you should never provide banks with false documents or false information as this may lead to you being declared a fraud or even blacklisting you for any future loan approval. Never sign a blank document regarding your loan. There are many frauds looming in the market that can con you of your money, so be careful when you apply for a loan and do so with authorized vendors and bank employees.


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