Question

Explain term loans as sources of long term finance.

Answer 1

• Term loans are a type of debt financing in which a company contracts with a bank or other financial institution to borrow a set sum of money for a predetermined duration of time, typically five to twenty years.
• Major projects, business expansion, and the acquisition of fixed assets are the usual uses for these loans.
• Term loans can have regular principal and interest repayment schedules and either fixed or variable interest rates.
• Frequently, they ask the borrower to pledge assets like real estate, equipment, or other valuables as collateral.
• Because of interest payments and the possibility of collateral loss in the event of default, term loans raise financial risk even if they provide a regular repayment schedule and quick access to substantial resources.