A term loan is for a specific amount that has a specified repayment schedule and a fixed or floating interest rate. They are secured borrowings, and assets are often put up as security or collateral against payment to ensure that payments are being made when scheduled. For all businesses they are sanctioned for acquisition of capital equipment.
They are repayable as per the projected cash flows of the different projects and are generally based on reducing amortized costs.
A Term loan is a credit facility allowed for a fixed period either in lump sum or in installments and which is repayable according to a schedule of repayment over a period. A term loan is granted for a period of 6 months and above but not exceeding 10 years except in case of scheme specific advance. The financing of such projects shall be made to borrowers/promoters who have passed through proper due diligence assessment and found to be creditworthy. Furthermore, all projects to be financed by the Bank must be financially and economically viable and socially desirable. The viability and desirability of the projects shall be verified through the Bank's detailed appraisal and approval process.
1. In the case of Term loans sanctioned for funding capex, as far as possible, funds are to be disbursed directly to the vendors for the project.
2. In the case of Term loans sanctioned to reimburse capex incurred, breakup of cost incurred along with relevant invoices are to be obtained and verified and funded accordingly.
3. In the case of Term loans sanctioned for general purposes/long-term working capital purposes, the term loan shall be disbursed in the cash credit account of regular working capital lender(s). The Credit Department shall endeavor to obtain statement of account to which the funds have been disbursed along with copy of invoices, if any. An undertaking should be obtained from the borrower that funds, proposed to be availed from the Bank, will not be utilized for any other use other than for the purpose for which it was sanctioned. Additional verification of end use shall be ensured by calling for perusal of stock statements and inspection of Borrower’s books of accounts.
