Personal Loans Houston TX
Term Loan - Info
There are many types of loans out there. Whether for business, pleasure, or personal use, knowing what type of loans are available is important to making sound financial decisions. One common type of loan is the term loan. It is a common way of getting quick financing for many reasons.
The way a term loan works by the definition of most banks is fairly simple. The loan is given to you and is due up on a certain date. Before that date you may payments that are generally on interest only. On the term loan date, though, you will owe the entire balance of the loan.
The maturity of such a term loan is usually anywhere from three to five years. That makes it a fairly short term loan. Though dangerous because of the lump sum due at the end of the loan, term loans do have a place in the financial landscape and can be valuable.
On the other hand, it is important to note that some banks call any loan written for a specific time a term loan. That means a 60 month (5 year) loan with monthly principal and interest payments is a type of term loan. Though not as common a definition it is important to realize that there are alternative definitions.
With multiple definitions available for a term loan, it is important to consider all the different types. Depending on what you need and how long you need it, there may be a number of term loans you would want to consider. Additionally, fully understanding what is out there in terms of a term loan can help you make a sound financial decision.
For Your Business
The most common use of term loans is for businesses. If you are running a small business, there are undoubtedly going to be times when you need some working capital to either get things going or keep yourself afloat. Many times, a term loan is the answer for just such a problem.
Many banks and similarly run financial institutions offer term loans as a way to help small business owners. However, like with any other loan you and your business need to qualify. How does that work, though? There are some factors that will affect term loan approval.
The first thing a bank looks at when considering your business for a term loan is your credit character. That is, they want to know how you have managed loans in the past. They will look at you personally as well as your business. They also want to know what your experience is. For example, if you want a term loan to open your own bait and tackle shop, yet have no retail or fishing industry experience then you may have a tough time.
Another factor taken into account when seeking a term loan is your credit capacity. Credit capacity is how the bank views your ability or likely ability to pay back the loan. They will look at your business records, personal finances, and even your former business ventures to get a clear picture.
Most banks will want collateral for a term loan. They will, in fact, probably want more in collateral than what the loan is worth in the first place. This is to ensure that if you do not pay back the term loan that the bank will be able to recoup their loss in some form.
As a final point, they will look at your overall capital. They will want to see your cash holdings. They will also look at what you have available that can be liquidated. Essentially, the bank wants to make sure that they will get their money even if your business struggles.
The Intermediate Term Loan
When your business has to look at a term loan, there are actually a couple of different types to consider. They vary not only in length, but also terms of function. An intermediate term loan is one such option you may explore depending on what your needs are versus what your situation is.
In terms of length, intermediate term loans are basically what they sound like. Running somewhere under 3 years in most cases, an intermediate loan is repaid in monthly installments. These are usually interest only or with small amounts of principal. So at the end of the loan, there is generally some sort of balloon payment.
An intermediate term loan is tied directly with what you are financing with it. In fact, the most common situation that you will see with these loans is that the length of the loan coincides with how long the useful life is of what you are financing. A formula of some sort is generally put together that will take into account what you are financing and when your loan will mature.
As a final point, an intermediate term loan is also paid from the cash flow of a business. It is not tied to you, per say, personally. Instead, it is tied to your business and its flow of cash. It is an important distinction to make.