What are term loans? What are the features of term loans?

What are term loans? What are the features of term loans?

Term Loan is a liability accepted by the company for purchasing the fixed assets. These are repayable over a period of 3 – 10years. These can be given by Banks or other financial institution.

Following are the features of term loans:

1) Banks or Financial institutions granting term loans are creditors and not the owners of the company. They only lend the funds to the company.

2) They are required to be repaid during the life time of the company at a predecided interval.

3) The term loans are either secured or unsecured.

4) Return on term loans is paid in the form of interest. This interest is still paid even if there is non availability of profits.

5) This source of raising funds is very risky from company’s point of view.

6) Term Loans are less risky on the part of banks and financial institution.

7) They are cheap source of funds from company’s point of view.