Term Loans or Project Funding?

Term Loans are loans offered to businesses for their expansion, capital expenditure and for fixed assets. Term loans are generally short-term loans and Long Term loans, having a tenure of up to 30 years. These short-term finance options are structured in a way that it meets your business finance needs. Depending on the lender, your repayments can be scheduled to match your available cash flow.

Term loans can also be sanctioned for the project or non-project loan. Project loans are sanctioned for setting up a new unit or for expansion of existing units whereas non-project loans are those extended for the acquisition of fixed assets, like a Equipment,  Machinery, Factory etc.

A loan that is set to be repaid in regular payments over a set period of time is called a term loan. Most term loans last from one year to ten years. Some term loans may last for more than 10 years. Usually, the tenure for a term loan is decided at the time of loan application by the lending institution or bank.

What is deference between Short Term and Long Term Loans

Short-term loans and long-term loans have generally the same structure, there are some characteristics of the two that make these loans different.

Short Terms business loans : Short terms loans are popular because of the few requirements needed to be approved for the loan and this type of loan is flexible. Usually are offered at a higher interest rate than a long term loan, capitalizing on the length of your loan.

Long Term loans : Long term loans can be taken over an extended amount of time. Most common long term loans are mortgages, student loans, wedding loans, start-up business loans, and home improvement loans. A long term loan is credit based. The better your credit score the better your interest rates will be. A long term loan can be in the form of a secure or an unsecured loan. A secure loan requires a form of collateral or asset, such as a title to your car or your home. An unsecured loan does not require any assets and has a higher interest rate as the lender has more at stake.

What is deference between Short Term and Long Term Loans

The features of term loans are as follows:

  • Term loans are Secured Loans. The asset that is purchased using the term loan amount, will serve as a primary security and other assets of the company will be serving as collateral security.
  • The loan has to be repaid within the fixed term regardless of the firm’s financial situation.
  • The interest rate on the loan is charged after evaluating the credit risk of the proposal, the loan amount and tenure for which the loan is taken. The interest rate will be subject to a minimum lending rate. The rate is negotiated between borrowers and lenders at the time of distributing the loan.
  • The term loan’s maturity lies between 5 -10 years. The repayment of the loan is made in installments. The tenure can be rescheduled to help borrowers deal with the financial emergencies.
  • The lender will ask the borrower not to raise additional loans and to repay the existing loans and maintain a minimum asset base.
  • Term loans can be converted into equity according to the terms and conditions that have been laid out by the lender.
  • Financial institutions impose a penalty on the defaults.
  • Commitment fee is charged on the unutilized loan amount.
  • The principal loan amount is to be repaid after the initial grace period of 1 – 2 years.
  • Commercial banks’ term loan are repayable in equal quarterly installments whereas financial institutions’ term loan are repayable in equal semi-annual installments.
  • Servicing burden of the loan declines over time. The interest will be less and the principal repayment will remain constant.

Documents Required

Every customer has to satisfy the Know Your Customer (KYC) norms stipulated by RBI. You have to provide the documents relating to your KYC, employment, business, and income.

Identity Proof

  1. PAN Card
  2. Aadhar Card
  3. Voter ID
  4. Driving Licence
  5. Passport

Address Proof

  1. Registered Rent agreement
  2. Aadhar Card
  3. Driving License
  4. Lease agreement
  5. Passport
  6. Latest Gas or electricity bill

Financial Documents – Business Proof

  1. Audited Financial Statement of last 3 years along with Income Tax Return Acknowledgement.
  2. Provisional Balance Sheet for the current year.
  3. Projection of Sales, Purchase, Stock & Raw Material Consumption for the next year.
  4. Quotation of Machinery that you will purchase.
  5. Installed Capacity, Licensed Capacity – existing & proposed, Envisaged Capacity Utilization.
  6. Details of Raw Material requirement, calculation, how desired? Source of supply and supply position. The cost of ram material supported by current quotation.
  7. Catalog / Brochure of Machine (In case of machinery purchase)
  8. Maintenance arrangement & costs thereof.
  9. Detailed project report and Project implement schedule.
  10. Additionally, you have to mention the cost already incurred.
  11. Sources of such expenditure.
  12. Finally, the request letter.

Other documents:

  1. Loan application form duly filled in
  2. Photographs
  3. Signature Proof

•    Low-cost credit
•    Financing as per cash-flow
•    Customized products to meet your requirements
•    Products offered across leading lenders
•    Short-term finance, having a tenure up to 5 years
•    Flexible loan offering, repayment can be scheduled as per cash-flow
•    Hassle-free documentation and quick turnaround time

  1. Upfront fee for processing –Many banks charge an upfront fee for processing your application. This is usually in the range of 3000 to 5000. This is a non-refundable fee, even in case the bank rejects your loan application. In case they sanction your loan, they adjust this fee in their regular processing fees.
  2. Processing fee –This amount ranges from 0.25% to a maximum of 2% depending on your employment status. Salaried employees incur a smaller fee whereas self-employed professionals and business persons have to pay more. Some banks do have a uniform rate. Note that you have to pay GST @ 18% on this processing fee.
  3. Valuation charges –Many banks charge for the valuation of the property. They have independent evaluators on their panel. These banks have a fixed structure of payment. Some banks insist that the customer pays to the bank whereas some of them include this amount in their processing fee structure.
  4. Legal scrutiny charges –Legal scrutiny of the property is mandatory. The financing bank has to ensure that you get a clear title to the property so that the mortgage holds well in law. Therefore, they have a panel of legal experts who carry out the search for a period of 30 years. You need to supply the property documents to these advocates to allow them to do the needful. Some banks ask the customer to pay the advocates separately whereas many banks include these charges in their processing fees.

Qualifying for a business loan from BANK is simple. You just need to fulfill the following criteria to avail the benefits of the loan:

  • You should be between 25-55 years old.

  • Your business should have a vintage of at least 3 years.

  • Your business should have its Income Tax returns filed for at least the past 1 year.

You may need to submit other relevant financial documents at the time of document verification. You will be informed of these as and when required.

Here is a list of the Business Loan customer profiles that we consider:

  • Self Employed Professionals (SEP)
  • Allopathic doctors, chartered accountants, company secretaries and architects who are practicing their profession. Proof of qualification – document to be shared
  • Self Employed Non Professionals (SENP)
  • Traders and manufacturers, retailers, Proprietors, and service providers etc
  • Entities
  • Partnerships, Limited Liability Partnership, Private Limited and closely held Limited companies. Other constitution types depending on their profile on a case to case basis
  1. On completion of this process, you will be able to choose the offer that suits your requirements. You should keep your documents and the application forms ready. Uplaxya Consultants Pvt. Ltd. has a special team to assist you in this regard at no extra cost.
  2. The lender has the responsibility of verifying the KYC and income proof documents. The lender would like to inspect the property and have a discussion with the borrower to obtain first-hand information about the borrower’s employment, business, income, and investments.
  3. Verify the creditworthiness of the owner(s) of the business.
  4. Verify the business related documents such as physical verification of the office, analysis of the business bank statements and audited account reports and the previous two ITR filings of the business.
  5. Based on the past records verify the creditworthiness and the repayment capability of the business.
  6. Inform the applicants of their final eligibility, and the attached interest rates, tenures and other important terms and conditions and additional fee and charges.
  7. Should the applicant agree, finish the loan processing and approve the loan amount and the disbursal method.
  8. Loan disbursal.

Frequently asked questions (FAQ)

Yes, you can get a term loan to expand your business. If you want to borrow a large sum of money under the term loan, you must consider a long-term loan like a Loan Against Property (Commercial). You will be able to get a lower interest rate on the loan and repay the loan in easy EMIs. If you only need a small amount, consider one of the many short-term commercial loan offerings from various banks.

Different financial organizations have different time periods allotted to the various kinds of loans that they offer. Most organizations that offer unsecured business loans, claim to disburse the small business financing option of a business loan in roughly five to seven working days. This comparatively faster access to funds is helping close the lending gap that SMEs in India mostly go through. SME Corner – an online lender of unsecured business loans offers loans within three business days, if all the paperwork and necessary processes are in place.

Longer repayment period With a longer repayment period, you’re not as pressured to pay back the entire loan amount quickly; however, this doesn’t mean that you should push your monthly payments to the back of your head. As this is a long-term expense, you still need to have a plan to tackle the debt. Lower interest rates Long-term loans usually have lower interest rates than short-term debts. This is because the application for long-term financing is much more stringent because more risk is involved being that more money is involved as well; however, as you’ll find out later, you’ll spend more on interest with long-term loans. Can fund big-ticket expenses The goal of any business is profits, and with that, comes the ability to scale or grow. When you started out your business, you wore many hats; you did finance, marketing, sales, purchasing, and what have you; however, as your business grows, a point in time will come wherein you’ll have to hire people and your basement or garage is unsustainable to call your office. The more your business scales, expenses are bound to crop up, and some of them will be expensive. If you have a need to automate the production of your product, you’ll need to purchase the machinery. What if you need multiple machines? This can come with a hefty price tag. Enter long-term loans, they can fund big-ticket expenses such as funding a property purchase to call your new office.

If the borrower fails to make the repayments, the lender will question the borrower’s liquidity position and the company’s existence will be at stake. Debt financing increases the financial risk of the company. It adversely affects the benefits of the shareholders. In addition to the collateral security, the borrower will have to tend to the restrictive covenants imposed by the lenders. The borrower will have to close the existing loans and must maintain the asset base and not take another loans. This causes unnecessary interference in the firm’s functioning. Since the terms and conditions are negotiable, there is chance that it might affect the interest of the lender. The lender of term loan will have no control over the company’s affairs and it leads to the lender asking the borrower to convert the loan to equity. Risk Of Default and Loss Of Asset – If your business is unable to repay the loan (default), the lender can and likely will take possession of the collateral asset. Also, the value of the collateral asset lost may be greater than the actual value of the secured business loan (e.g., building or real-estate). Your business may not survive the loss of the pledged asset if it critical to its operations. Start Ups Need Not Apply – Lenders requirements of loan recipients normally require that a business have as least two years under the same ownership and be profitable to qualify for a secured business loan. While the lender will take into consideration the credit and financials of the business, it is the type and value of the collateral asset pledged that will be the major consideration. If your business is new or doesn’t have strong financials, getting approval of a secured loan will be difficult.

You can apply for a term loan. However, banks and financial institutions do not lend money to people with poor credit history. You need to check with a few banks to find out if they consider applicants with a bad credit history. In most of the cases, they levy relatively high rate of interest on term loans to people with a bad credit score. The other option is to consider a secured loan. Even a small secured loan can help you improve your credit score significantly. However, if you have a poor credit rating and secured loans are not an option, it is best to not think of taking out or even applying for more credit. Every time your application is processed, it is a hit on your credit report. Multiple failed applications within a short span on time in addition to outstanding credit will raise more than one red flag. Simply put, if your credit is bad, improve it before you consider applying for new credit. You are entitled to obtain one free credit report from CIBIL every year, and more for a fee. If you have not checked your own credit score recently, this report will help you know which debts are having the worst effect on your rating and address them accordingly.

Long-term loans are better than short-term loans as they correspond to lower EMIs. They do not push the borrower to repay the loan in a short span of time. This does not put excessive stress on the borrower’s overall budget as well.

Secured business loans are a common funding instrument for small businesses. A secured business loan is any type of business funding instrument secured by a personal guarantee or by pledging valuable assets as collateral.
In simpler terms, you are assuring the lender of paying back the amount you borrow. And if you are unable to repay the sum, the lender is free to utilize the pledged asset or personal guarantee to recover their losses. Secured business loans offer affordable interest rates and longer term duration.

All types of small businesses could benefit greatly from this type of loan, however, companies that have mutual funds, vehicles, inventory, equipment, accounts receivable, land, buildings or other property to put up as collateral will have significantly lower payments and significantly longer repayment periods as compared to unsecured, collateral-free loans

Qualifying for a TERM LOAN from BANK is simple. You just need to fulfill the following criteria to avail the benefits of the loan:

  • You should be between 25-55 years old.

  • Your business should have a vintage of at least 3 years.

  • Your business should have its Income Tax returns filed for at least the past 1 year.

You may need to submit other relevant financial documents at the time of document verification. You will be informed of these as and when required.

Here is a list of the Term Loan Business customer profiles that we consider:


  • Promoters background
  • Business model
  • Operational performance
  • infrastructure
  • Cost
  • Location
  • Collateral security
  • Present financial performance
  • Projected financial performance
  • Credit repayment track record
  • External credit rating