Presented by

Aswathy Krishna.S
Roll No: 8
A loan is the purchase of the
present use of money with the
promise to repay the amount
in the future according to a
pre-arranged schedule and at
a specified rate of interest.

A monetary loan that has to be

repaid in regular payments
over a set period of time is
referred to as a term loan.
 Bank term loans are very a common kind of lending.

 An unfixed interest rate is usually involved in a term

loan that will add additional balance to be repaid.

 Term loans are generally provided as working capital for

acquiring income producing assets (machinery,
equipment, inventory) that generate the cash flows for
repayment of the loan.

 The repayment of the loans and facilities is normally fixed

on case to case basis depending on projected cash flow of
the borrower.
 Term loans are also a source of long term debt. In
India, they are generally obtained for financing large
expansion, modernisation or diversification projects.
 Term loans can be given on an individual basis but
are often used for small business loans. The ability to
repay over a long period of time is attractive for new
or expanding enterprises, as the assumption is that
they will increase their profit over time
 . Term loans are a good
way of quickly increasing
capital in order to raise a
business’ supply
capabilities or range.
 One thing to consider when
getting a term loan is
whether the interest rate is
fixed or floating
 Time to maturity
 Repayment Schedule.

 Interest.

 Security.
• Type of debt financing
• FI provides rupee term loan and foreign currency
term loan
• Mainly for investment in fixed assets
• Also for getting technical know-how, preliminary
expenses and margin money for working capital
• Foreign currency term loan for import of plant and
machinery
• Assets which are financial with term loan is the
prime security
• Other assets of the firm can be collateral
• Repayable in equal half yearly or quarterly
installment
• Interest rate charged is as per credit risk of the
project
• Incase of default of payment penal interest is
charged
 Fixed rate - enjoy the peace of mind of fixed monthly
repayments
 Variable rate - linked to base rates (Rates can rise or
fall)
 Repayment holidays - improve your cashflow by
making no loan repayments or repaying only interest for
a fixed term after drawing down your loan
 Repayment style - choose from capital and interest,
capital only or interest only
 Repayment frequency - pick the frequency that
suits you from monthly, quarterly, half yearly and
yearly
 Staged drawdown - save on interest costs and enjoy
lower initial payments
 Make one-off repayments - use surplus cash to
reduce interest charges and benefit your business
 Flexibility
 Individuals can have a term loan but they are usually
used for small business loans. It is an attractive loan
for new or expanding enterprises, as they have huge
time to repay the loan amount and it is assumed that
they will increase their profit over time.

 For raising a business’ supply capabilities or range,

term loans are a good way of increasing capital in a
short span of time
• Submission of loan application with project report
• Project report
- particulars of the firm
- particulars of the project
- cost of the project
- means of financing
- marketing and selling arrangement
- profitability and cash flow
- government consent
• Initial processing of loan application
- additional information may be added
• Detailed appraisal of proposed project
- marketing, technical, financial,
managerial and economic appraisal
• Issue of letter of sanction
• Acceptance of terms and conditions by the borrower
- by passing appropriate resolutions
• Execution of loan agreement
- FI sends the draft agreement to the
borrower which is to be signed and stamped by
the borrower
• Creation of charge over security
- creation of mortgage, deposit of title
deeds and hypothecation of movable property
• Disbursement of loans
borrower is required to submit following
information
- physical progress of project
- financial status of project
- contribution made by promoters
- projected fund flow statement
- compliance of statutory
requirements
Based on such information disbursement of loan amount is
decided
• Monitoring of loans
- it is done at 2 stage
- implementation stage & operational stage
Implementation stage
- regular reports from promoters
- periodic site visit
- progress report submitted by nominee director
Operational stage
- quarterly progress report
- periodic site visit
- progress report submitted by nominee director
 long-term.
 Intermediate term loan
 Short-term loans
 Long-term loans usually mature in one to seven
years, but can be longer for real estate or
equipment.
 These loans are used for major business expenses
such as vehicles, purchasing facilities,
construction and furnishings.
 They also can be used to carry a business through
a depressed cycle.
 .Length of Term
 Time to Grow:

 Structure

 Interest Cost

 Challenging to Get Approved

 Limited Financial Options

Term loans finance the purchase of furniture,
fixtures, vehicles, and plant and office equipment.
Maturity generally runs more than one year but less
than five.
Consumer loans for autos, boats, and home repairs
and remodeling are also of intermediate term
Short-term loans

 Short-term loans, typically lines of credit, working

capital loans, or accounts receivable loans, usually reach
maturity within one year or less

 A short term business loan is an option for an established

business that has a strong support and patronage
 do not usually require collateral
 allow quick application that makes the funds available in
several days or even hours
 require little paperwork
 provide you with money when you feel a sudden
unexpected need
 With short term loans you do not burden yourself with
long term obligations
 Short term loans are available from various lenders that's
why it's possible to find short term loans that fit your
budget and lenders that offer you better conditions
 usually more expansive.
 not secured by collateral the lender raises interest
rates to cover the risk
 Before giving you short term loans the lender is
likely to investigate into your credit history and if
it is excellent you will be offered short term loans
with lower interest rates
 Purchase of Fixed Assets
 Switching of Higher Interest Loans

 Mortgage Term Loan

Commercial banks offer a wide range of corporate financial
services that address the specific needs of private enterprise.
They provide deposit, loan and trading facilities but will not
service investment activities in financial markets.

The list of specialized financial institutions in India mainly

includes, IFCI, IDBI Bank, Export-Import Bank Of India,
Board for Industrial & Financial Reconstruction, Small
Industries Development Bank of India, National Housing Bank.
They are government undertakings established with a view to
offer financial as well as technical assistance to the Indian
industries.
 The Reserve Bank of India (RBI) has told banks to
focus on lending for the short and medium term
rather than lock themselves in long-term loans
 RBI told banks that since the average liability on the
books of banks was in the range of one to two years,
they would be better positioned to lend projects for
short to medium term, will help banks in improving
their asset-liability mismatches
 all categories of loans should be priced only with
reference to the base rate
In terms of RBI guidelines, Banks in India have switched to Base Rate system
from Benchmark Prime Lending Rate (BPLR) system from July 01, 2010.
PUBLIC SECTOR BANKS
State Bank of India                 7.50%
Federal Bank                 7.75%
State Bank of Mysore               7.75%
Corporation Bank                 7.75%
Bank of India                8.00%
Punjab National Bank                8.00%
Bank of Baroda                8.00%
Union Bank                8.00%
Central Bank of India                 8.00%
Indian Bank                 8.00%
Uco Bank                8.00%
IDBI Bank                 8.00%
Indian Bank                8.00%
Canara Bank                 8.00%
Vijaya Bank                 8.25%
Indian Overseas Bank                8.25%
PRIVATE SECTOR BANKS

HDFC Bank                 7.25%

ICICI Bank                 7.50%
DCB                 7.75%
Dhanlaxmi Bank                7.00%
Bank of Rajasthan                 8.00%
Karur Vysya Bank                 8.50%