Term loans
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What is a term loan in banking?
A term loan is a credit facility extended for a fixed period exceeding one year, repaid in installments from the borrower's cash flows or earnings, used primarily for capital expenditure or long-term business needs.
What is the minimum repayment period that typically qualifies a loan as a term loan?
Loans repaid over more than one year are term loans.
How are term loans classified based on tenor?
Term loans are classified as short-term (up to 3 years), medium-term (3 to 7 years), and long-term (above 7 years), depending on the repayment period agreed between the bank and the borrower.
What is a medium-term loan and what is its typical tenor range?
Tenor between three to seven years qualifies as medium-term loan.
What is the primary purpose of a term loan?
Term loans are primarily used to finance fixed assets such as land, building, plant and machinery, and equipment required for setting up or expanding a business enterprise.
What is a long-term loan and what tenor does it usually cover?
Loans with tenor exceeding seven years are classified as long-term.
What is a moratorium period in the context of term loans?
A moratorium period is the initial phase of a term loan during which the borrower is not required to repay the principal; only interest may be payable, allowing the project time to generate revenues before repayments begin.
What does DSCR stand for and what is its acceptable minimum value?
Debt Service Coverage Ratio; minimum acceptable value is 1.5.
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