Term Loan Ppt1

8/8/2019 Term Loan Ppt1

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TERM LOAN

Presented by

Aswathy Krishna.S

Roll No: 8


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MEANING

A loan is the purchase of thepresent use of money withthe promise to repay theamount in the future

according to a pre-arrangedschedule and at a specifiedrate of interest.

A monetary loan that has to be

repaid in regular paymentsover a set period of time isreferred to as a term loan.


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Bank term loans are very a common kind oflending.

An unfixed interest rate is usually involved in a termloan that will add additional balance to be repaid.

Term loans are generally provided as working capitalfor acquiring income producingassets (machinery,equipment, inventory) that generate the cash flows for

repayment of the loan.

The repayment of the loans and facilities is normallyfixed on case to case basis depending on projected cash

flow of the borrower.


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. Term loans are a goodway of quickly increasingcapital in order to raise a

business supplycapabilities or range.

One thing to considerwhen getting a term loanis whether the interestrate is fixed or floating


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CHARACTERISTICS OF TERM LOANS

Time to maturity

Repayment Schedule.

Interest. Security.


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FEATURES OF TERM LOAN

Type of debt financing

FI provides rupee term loan and foreign currencyterm 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


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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 ischarged


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BENEFITS OF TERM LOAN

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


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BENEFITS OF TERM LOAN

Repayment style - choose from capital andinterest, capital only or interest only

Repayment frequency - pick the frequency that

suits you from monthly, quarterly, half yearly andyearly

Staged drawdown - save on interest costs andenjoy lower initial payments

Make one-off repayments - use surplus cash toreduce interest charges and benefit your business

Flexibility


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WHO CAN HAVE A TERM LOAN?

Individuals can have a term loan but they areusually used for small business loans. It is anattractive loan for new or expanding enterprises,

as they have huge time to repay the loan amountand it is assumed that they will increase theirprofit over time.

For raising a business supply capabilities orrange, term loans are a good way of increasingcapital in a short span of time


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TERM LOAN PROCEDURE

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


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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 theborrower

- by passing appropriate resolutions


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Execution of loan agreement

- FI sends the draft agreement to the

borrower which is to be signed and stamped bythe borrower

Creation of charge over security

- creation of mortgage, deposit of titledeeds and hypothecation of movable property


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Disbursement of loans

borrower is required to submit followinginformation

- physical progress of project

- financial status of project

- contribution made by promoters

- projected fund flow statement

- compliance of statutory

requirementsBased on such information disbursement of loan amount

is decided


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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


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TYPES OF TERM LOAN

long-term.

Intermediate term loan

Short-term loans


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LONG-TERM.

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.


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CHARACTERISTICS OF LONG-TERM

LOANS

.Length of Term

Time to Grow:

Structure Interest Cost

Challenging to Get Approved

Limited Financial Options


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INTERMEDIATE-TERM LOANS

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


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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 andpatronage


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BENEFITS OF SHORT TERM LOANS:

do not usually require collateral

allow quick application that makes the funds availablein several days or even hours

require little paperwork

provide you with money when you feel a suddenunexpected need

With short term loans you do not burden yourself withlong term obligations

Short term loans are available from various lendersthat's why it's possible to find short term loans that fityour budget and lenders that offer you better conditions


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DISADVANTAGES OF SHORT TERM

LOANS

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


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THE TERM LOAN CAN BE AVAILED TO

:

Purchase of Fixed Assets

Switching of Higher Interest Loans

Mortgage Term Loan


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SPECIALIZED FINANCIAL INSTITUTIONS IN

INDIA

Commercial banks offer a wide range of corporate financialservices that address the specific needs of privateenterprise. They provide deposit, loan and trading facilitiesbut will not service investment activities in financial markets.

The list of specialized financial institutions in India mainlyincludes, IFCI, IDBI Bank, Export-Import Bank Of India,Board for Industrial & Financial Reconstruction, SmallIndustries Development Bank of India, National HousingBank. They are government undertakings established with aview to offer financial as well as technical assistance to theIndian industries.


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GUIDELINES OF RBI

The Reserve Bank of India (RBI) has told banks tofocus on lending for the short and medium termrather than lock themselves in long-term loans

RBI told banks that since the average liability onthe books of banks was in the range of one to twoyears, they would be better positioned to lendprojects 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


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LATEST LENDING RATES (BASE RATES)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%CorporationBank 7.75%B

ank of India 8.00%Punjab National Bank 8.00%Bank ofBaroda 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%


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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%


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Documents

Term Loan Ppt1