TERM LOAN
A term loan is a loan from a bank for a specific amount that has a specified repayment schedule and a fixed or floating interest rate. For example, many banks have term-loan programs that can offer small businesses the cash they need to operate from month to month. Often, a small business uses the cash from a term loan to purchase fixed assets such as equipment for its production process.
A term loan is for equipment, real estate or working capital paid off between one and 25 years. The loan carries a fixed or variable interest rate, monthly or quarterly repayment schedule, and set maturity date. The loan requires collateral and a rigorous approval process to reduce the risk of repayment. A term loan is appropriate for an established small business with sound financial statements and a substantial down payment to minimize payment amounts and total loan cost.
Benefits of Working Capital Finance
- Term loans are Secured Loans. The asset that is purchased using the term loan amount, will serve as a primary security and other assets of the company will be serving as collateral security.
- The loan has to be repaid within the fixed term regardless of the firm's financial situation.
- The interest rate on the loan is charged after evaluating the credit risk of the proposal, the loan amount and tenure for which the loan is taken. The interest rate will be subject to a minimum lending rate. The rate is negotiated between borrowers and lenders at the time of distributing the loan.
- The term loan's maturity lies between 5 -7 years. The repayment of the loan is made in instalments. The tenure can be rescheduled to help borrowers deal with the financial emergencies.
- The lender will ask the borrower not to raise additional loans and to repay the existing loans and maintain a minimum asset base.
- Term loans can be converted into equity according to the terms and conditions that have been laid out by the lender.
- Financial institutions impose a penalty on the defaults.
- Commitment fee is charged on the unutilized loan amount.
- The principal loan amount is to be repaid after the initial grace period of 1 – 2 years.
- Commercial banks' term loan are repayable in equal quarterly instalments whereas financial institutions' term loan are repayable in equal semi-annual instalments.
- Servicing burden of the loan declines over time. The interest will be less and the principal repayment will remain constant.
WCL loans are extended to small and medium sized dealerships, distributorships, traders, manufacturers, and service providers across various industry clusters in the market
Eligibility Criteria
Some general factors taken into account while determining the eligibility of Term Loan are:
- Customer Profile : Small and medium sized manufacturers, dealers, traders, and service providers engaged in various industries.
- Minimum Business Vintage : 3 years
- Property Ownership : Ownership of at least 1 property is mandatory
DOCUMENTS REQUIRED
- Application form duly filled and signed by the Borrower
- Latest statement of Assets and Liabilities of all the Directors / Partners / Properties / Guarantor as the case may be duly filled and certified by Chartered Accountant
- Copy of MOA and AOA / Partnership deed as the case may be. Copy of Certificate of Incorporation and Commencement of Business in case of Company.
- Audited Financial Statements along with annexure / schedules and Auditors report for the last three years.
- Projected financial statement along with annexures / schedules for the current year along with assumptions of the projected figures.
- KYC of all the Partners/Directors along with their three year ITR
- CMA data incorporating audited financials for the last two years, current year along estimates and next year projections
- Month wise sales and purchase details upto a recent date from the beginning of the current financial year.
- Term Loan Proposals
- Detail Project report covering information on the project, project cost, source of finance, technical feasibility & economic viability report, implementation schedule, current status of the project
- Projected profitability statement, projected cash flow statement and projected Balance Sheet covering the tenor of the term loan sought. The assumption underlying the profitability estimates and DSCR calculations.
- Details of the associate concerns of the Borrower in terms of their principal activity, directors, Financial details i.e., turnover tangible net worth and net profit for the last two years along with the details of credit limits enjoyed by the associate / group concerns of the firm along with financial statement for the last two years.
- Details of primary security and collateral security available / offered for the credit
- Details of credit limits enjoyed with other Banks / Financial Institutions
- Copy of VAT, Service tax Details
- Copy of the SSI/SME registration if any
- Copy of the Gumastha Licence ( Shops and Establishment License) if any