What is a business term loan?

A business term loan is a type of financing offered by Non-banking Financial Companies (NBFCs), banks and other financial institutions to companies to meet their working capital and business needs. It is a medium- to long-term secured loan, with a tenure generally ranging from 1 to 5 years (or more). Term loans allow businesses to borrow larger loan amounts, usually between ₹10 lakhs to multiple crores, compared to other forms of financing.

The interest rates charged are based on external benchmark lending rates and the applicant's credit profile. Financial institutions may require collateral or security, such as property, fixed deposits, shares, or any business assets, to sanction the term loan.

The key benefit of term loans is the flexibility they offer in the end use of the funds. Business owners can utilise the loan to finance expansion costs, purchase new equipment, meet working capital gaps, or even refinance existing loans.

Repayment of a term loan is done through Equated Monthly Instalments (EMIs), including principal and interest components. Some loan providers may also offer a moratorium period.