From the course: Banking Basics: What Every Business Leader Must Know
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The basics of term loans
From the course: Banking Basics: What Every Business Leader Must Know
The basics of term loans
- Term loans are another type of loan that businesses use frequently, so let's talk about them. Remember, these types of loans are used to purchase long-term assets. They have a maturity date of three to 10 years. As an example, if you buy a building, the maturity of your loan will be longer than if you had bought a piece of equipment. This is because the useful life of the building is longer than that of the equipment. Term loans may have a floating rate or a fixed rate. If your bank doesn't provide you a fixed rate, ask. When you accept a fixed rate, it will never change. Next, term loans do amortize. That means shortly after you get your loan, you begin repaying it by making scheduled principle and interest payments back to the bank. If you have a fully amortizing loan, it means the loan will be repaid in full by the time the loan matures. If you have a partially amortizing loan, you'll need to make one big payment…
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