Term Loan
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What is a term loan?
A term loan is a credit facility extended for a fixed period, typically more than one year, repaid in installments from the cash flows generated by the funded asset or business activity.
What is the typical repayment period for a medium-term loan?
Medium-term loans have repayment periods of 3 to 7 years.
How are term loans classified based on maturity?
Term loans are classified as short-term (up to 1 year), medium-term (1–5 years), and long-term (5–10 years or beyond), depending on the repayment schedule.
What is the minimum DSCR generally acceptable to banks for term loan sanction?
Banks generally require a minimum DSCR of 1.25 to 1.5.
What is the primary purpose of a project term loan?
A project term loan finances capital expenditure such as setting up a new plant, acquiring fixed assets, or funding infrastructure projects that generate returns over a long period.
What is the meaning of 'promoter contribution' in term loan financing?
Promoter contribution is the equity margin funded by borrower from own sources.
What is the significance of a Debt Service Coverage Ratio (DSCR) in term lending?
DSCR measures a borrower's ability to service debt from operating cash flows; a DSCR of 1.5x or above is generally considered acceptable, indicating sufficient surplus after meeting debt obligations.
Which financial statement is most critical for assessing term loan repayment capacity?
Projected cash flow statement is most critical for repayment capacity assessment.
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