Term Loan

Term loans are one of the most common forms of borrowing for businesses and individuals. The borrower receives the full amount upfront and repays it, with interest, according to an agreed schedule.

Term loans can be short-term, often less than a year; medium-term, typically one to five years; or long-term, lasting many years. Businesses often use them to fund specific investments, such as buying equipment, property or another company. Personal loans and car loans are also forms of term loan.

For example, a business might take a five-year term loan of 500,000 to buy new machinery, repaying it in monthly instalments that cover both interest and principal.

Term loans differ from revolving credit, such as a credit card or revolving credit facility, where the borrower can draw, repay and draw again up to a limit. Term loans for businesses often include covenants, conditions the borrower must meet, and may be secured against assets. Some are repaid in equal instalments, while others require a large final payment at the end, called a balloon payment.