Glossary - 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 variable interest rate. Term loans are often used for the purpose of acquiring capital assets or for investment in the company operations. They typically mature between one and ten years, but may last as long as 30 years in some cases.
Also known as
- Installment Loan
- Bank Term Loan
Use cases examples
- Loan Agreement: Pursuant to the terms of this Loan Agreement, XYZ Corp agrees to borrow a term loan of $1,000,000 from ABC Bank, repayable over five years with a fixed interest rate of 5% per annum.
- Financial Statement: The financial statement of 123 Ltd. for the fiscal year ended December 31, 2022, includes a long-term liability section where a term loan of $500,000, due in 2027, is reflected.
Considerations for investors
- Evaluating the company's ability to service the term loan in conjunction with its existing debt and operational expenses.
- Considering the security and covenants associated with the term loan, as they could affect the company’s financial flexibility and the investor's position.
Considerations for founders
- Understanding the implications of the loan's terms, including interest rates, maturity date, and repayment schedule, on the company's cash flow.
- Assessing the impact of the loan on the company's balance sheet and financial health over the term of the loan.
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