Term loan — Loan availed for Long term investment, usually ranging from one to ten years.

When it comes to funding business expansion, a term loan is one of the most popular options for businesses in India. In this blog, we will discuss what a term loan is, how to calculate EMI for a term loan, the steps to get a term loan, when it is required in business, its effect on the balance sheet, and the prevailing rate of interest by various companies in India.

What is a Term Loan?

A term loan is a type of loan that is repaid over a fixed period of time, usually ranging from one to ten years. The loan is usually used for long-term investments such as buying equipment, expanding the business, or purchasing a property. The loan is repaid in equal installments over the term of the loan, including principal and interest.

How to Calculate EMI for a Term Loan?

To calculate the EMI for a term loan, you need to know the loan amount, interest rate, and the loan tenure. You can use an online EMI calculator to calculate the EMI for your term loan. Alternatively, you can use the following formula to calculate the EMI manually:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Where: P = Principal amount R = Rate of interest per month N = Loan tenure in months

Steps to Get a Term Loan:

Here are the steps involved in getting a term loan:

Step 1: Determine your loan requirement — The first step is to determine how much money you need to start or expand your business.

Step 2: Check your eligibility — The next step is to check your eligibility for the loan. This includes factors such as your credit score, income, age, and business plan.

Step 3: Choose the right loan — There are various types of loans available in India, such as term loans, working capital loans, equipment financing, and more. Choose the right loan that suits your business requirement.

Step 4: Gather the necessary documents — Once you have chosen the loan, you need to gather the necessary documents, such as business registration documents, ID proof, address proof, financial statements, and business plan.

Step 5: Apply for the loan — You can apply for a loan either online or offline, depending on the lender’s policies.

Step 6: Verification and approval — After you have applied for the loan, the lender will verify your documents and eligibility. If everything is in order, your loan will be approved.

Step 7: Disbursement of funds — Once your loan is approved, the funds will be disbursed to your account.

When is a Term Loan Required in Business and Its Effect on the Balance Sheet?

A term loan is required when a business needs to make a long-term investment, such as buying equipment, expanding the business, or purchasing a property. A term loan has a significant impact on the balance sheet of a business. The loan amount is considered as a liability on the balance sheet, and the repayments are considered as cash outflows. The interest paid on the loan is considered as an expense, which reduces the profits of the business.

Prevailing Rate of Interest by Various Companies in India:

The prevailing rate of interest for a term loan varies depending on the lender, loan amount, tenure, and credit score. Here are the prevailing rates of interest offered by some popular financial companies in India for term loans:

  1. State Bank of India — Interest rates start from 7.45% p.a.
  2. HDFC Bank — Interest rates start from 8.05% p.a.
  3. ICICI Bank — Interest rates start from 8.45% p.a.
  4. Axis Bank — Interest rates start from 8.75% p.a.

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