Modes of Financing
Purpose of Term Loans
Types and Features of Term Loans
Procedures Associated with Term Loans
Pros and Cons of Term Loans
Appraisal of Project
Repayment Schedule
Syndicated Loans
2. AGENDA
Modes of Financing
Purpose of Term Loans
Types and Features of Term Loans
Procedures Associated with Term Loans
Pros and Cons of Term Loans
Appraisal of Project
Repayment Schedule
Syndicated Loans
4. PURPOSE OF TERM LOANS
Capital
Expenditure
New
Industrial
Undertaking
Expansion
of
Existing
One
Acquisition
of
Movable
Assets
5. DIFFERENT TYPES OF TERM LOANS
Long Term Loans
Intermediate Term Loans
Short Term Loans
6. FEATURES OF TERM LOANS
• Currency- Financial Institutions provide both rupee as well as foreign currency term loans
• Security- Term loans typically represent secured borrowing
• Interest Payment and Principal Repayment- These are definite obligations that are payable
irrespective of the financial situation of the firm
• Restrictive Covenants- In order to protect their interests, FIs impose restrictive conditions on
the borrowers
7. PROCEDURES ASSOCIATED WITH
TERM LOANS
Submission of
Loan Application
Initial Processing
of Loan
Application
Appraisal of the
Proposed Project
Issue of Letter
of Sanction
Acceptance of
T&Cs
Execution of
Loan Agreement
Creation of
Security
Disbursement of
Loans
Monitoring
8. • Flexibility – Term loans are more flexible as it better accommodates changes to a person’s
budget due to unexpected life or business changes
• Interest – Term loans usually have a fixed interest rate, but it varies from bank to bank
• Penalty Agreements
• Predictability
• Assumption of Assets – Term loans is used to get the capital needed, to generate additional
funds that will pay off the loan
Pros and Cons of Term Loans
10. TECHNICAL FEASIBILITY
• It should attempt to determine whether technical requirements of the project can be met or
not
• It should cover whether the projected product mix can be manufactured or not
• The involvement of the appraisers would depend on the technology used
11. • It is an assessment of the projection of the firm’s sales
• It has a bearing on the earning capacity of the project
• A bank prefers loans where there is a large gap between the supply and the current demand
• The prime attention is that the project survives the three stages of business
ECONOMIC VIABILITY
12. • It involves financial evaluation
• It involves judging financial soundness
• Sensitivity Analysis
• SWOT Analysis
FINANCIAL VIABILITY
13. • Proposed organisation set-up
• Experience of the promoters
• Details of the key personnel to be associated with the project
• Existing/Proposed BOD
MANEGERIAL COMPETENCE
14. REPAYMENT SCHEDULE
• Term loans by FIs are generally repayable in equal semi-annual, quarterly or annual
installments
• The interest burden may decline over time but the principal repayment may remain the
same
• The DSCR is the determining factor in fixing the repayment period and quantum of
periodical installments
15. REPAYMENT SCHEDULE
The firm negotiates a Rs. 3 crore loan at 14% for eight years
Year Loan at the beginning Principal Repayment Interest Loan at the end
of the year of the year
1 30,000 3,750 4,200 26,250
2 26,250 3,750 3,675 22,500
3 22,500 3,750 3,150 18,750
4 18,750 3,750 2,625 15,000
5 15,000 3,750 2,100 11,250
6 11,250 3,750 1,575 7,500
7 7,500 3,750 1,050 3,750
8 3,750 3,750 525 -
