If you are evaluating loan options from a bank, you may want to know how term loans differ from other business loans. This article will explain the key terms of a term loan, also called a term facility, by providing an overview of terms common to other kinds of loans and evaluating which terms and conditions are unique. <\/p>\n\n\n\n
A term loan is a bank loan that provides an upfront amount of capital to your business. You must then pay the loan back according to a payment schedule plus interest. Banks usually provide term loans to companies for a specific purpose, such as to acquire a new piece of machinery or another company. This is because the bank expects you will repay the amount over a relatively short period i.e. no more than a few years. <\/p>\n\n\n\n
There are several features unique to a term loan, including:<\/p>\n\n\n\n
The table below explains three common ways you can negotiate the repayment of a term loan. <\/p>\n\n\n\nRepayment<\/strong><\/td> Description<\/strong><\/td><\/tr> Amortisation <\/td> If you repay a term loan through amortisation, you will make payments in equal amounts over regular intervals throughout the loan\u2019s life. Typically, the loan agreement does not require your business to make any payments for a short period after you receive the loan. This is called a payment holiday.
For instance, you may have a \u00a31m term loan at 5% per annum to be repaid over a year. The payment schedule might state that you will not make any payments for the first two months. After which, you will then pay \u00a3105,000 each month for the next ten months. By the end, your company will have paid off the principal (\u00a31m) plus the interest amount (\u00a350,000). <\/td><\/tr>Balloon Repayments<\/td> A balloon repayment is where your company does not make any payments until the life of the loan begins to draw to an end. At this point, your company will make increasingly larger payments.
Using the same example above, your company might not make any payments for the first eight months of the loan. Afterwards, your business must make incremental payments across the next four months, such as \u00a3100,000, \u00a3200,000, \u00a3350,000 and \u00a3400,000.<\/td><\/tr>Bullet Payment<\/td> A bullet payment is one where you repay the total amount of the term loan at the end of the loan\u2019s life. However, you may make interest payments before then.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n