Term Loan is a single transaction loan where the loan amount is disbursed either in lumsum or in stages to the extent of limit sanctioned and the loan amount is repaid in installments along with interest. In case of any enhancement in the loan amount, it is to be treated as second loan and liability controlled accordingly. Unlike other operative account like cash credit / overdraft, the facility of reinstating the limit to the extent of repayment is not permitted and hence not available. Loan amount stands reduced to the extent of repayment as and when it is made. This is mainly on account of the fact that the loan has been granted for a specific project/purpose. Hence, it cannot be used again for other purposes.
Term Loan has been defined as a loan repayable in stipulated installments ranging between three to five years linked to profit accruals. A suitable moratorium period is granted for the commencement of repayment depending upon the grace period necessary for the first batch of products to reach the market. Term Loan is made available both for industrial and non-industrial borrowers. Generally, Term Loan is granted for acquiring Land, Building, Plant and Machinery etc. However, nowadays Term Loan is granted even for purchase of vehicle, Consumer Durable and dwelling places.