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TERM LOAN FINANCING
Group Members:
Harshit Parekh
Priyankar Chakraborty
Sangita Karar
AGENDA
 Modes of Financing
 Purpose of Term Loans
 Types and Features of Term Loans
 Procedures Associated with Term Loans
 Pros and Cons of Term Loans
 Appraisal of Project
 Repayment Schedule
 Syndicated Loans
Reinvestment
of Profits
Loans from
CBs/ FIs
Public Deposits
Risk Capital Issue of Shares
Issue of
Debentures
MODES OF FINANCING
PURPOSE OF TERM LOANS
Capital
Expenditure
New
Industrial
Undertaking
Expansion
of
Existing
One
Acquisition
of
Movable
Assets
DIFFERENT TYPES OF TERM LOANS
Long Term Loans
Intermediate Term Loans
Short Term Loans
FEATURES OF TERM LOANS
• Currency- Financial Institutions provide both rupee as well as foreign currency term loans
• Security- Term loans typically represent secured borrowing
• Interest Payment and Principal Repayment- These are definite obligations that are payable
irrespective of the financial situation of the firm
• Restrictive Covenants- In order to protect their interests, FIs impose restrictive conditions on
the borrowers
PROCEDURES ASSOCIATED WITH
TERM LOANS
Submission of
Loan Application
Initial Processing
of Loan
Application
Appraisal of the
Proposed Project
Issue of Letter
of Sanction
Acceptance of
T&Cs
Execution of
Loan Agreement
Creation of
Security
Disbursement of
Loans
Monitoring
• Flexibility – Term loans are more flexible as it better accommodates changes to a person’s
budget due to unexpected life or business changes
• Interest – Term loans usually have a fixed interest rate, but it varies from bank to bank
• Penalty Agreements
• Predictability
• Assumption of Assets – Term loans is used to get the capital needed, to generate additional
funds that will pay off the loan
Pros and Cons of Term Loans
APPRAISAL OF PROJECT
TECHNICAL FEASIBILITY
• It should attempt to determine whether technical requirements of the project can be met or
not
• It should cover whether the projected product mix can be manufactured or not
• The involvement of the appraisers would depend on the technology used
• It is an assessment of the projection of the firm’s sales
• It has a bearing on the earning capacity of the project
• A bank prefers loans where there is a large gap between the supply and the current demand
• The prime attention is that the project survives the three stages of business
ECONOMIC VIABILITY
• It involves financial evaluation
• It involves judging financial soundness
• Sensitivity Analysis
• SWOT Analysis
FINANCIAL VIABILITY
• Proposed organisation set-up
• Experience of the promoters
• Details of the key personnel to be associated with the project
• Existing/Proposed BOD
MANEGERIAL COMPETENCE
REPAYMENT SCHEDULE
• Term loans by FIs are generally repayable in equal semi-annual, quarterly or annual
installments
• The interest burden may decline over time but the principal repayment may remain the
same
• The DSCR is the determining factor in fixing the repayment period and quantum of
periodical installments
REPAYMENT SCHEDULE
The firm negotiates a Rs. 3 crore loan at 14% for eight years
Year Loan at the beginning Principal Repayment Interest Loan at the end
of the year of the year
1 30,000 3,750 4,200 26,250
2 26,250 3,750 3,675 22,500
3 22,500 3,750 3,150 18,750
4 18,750 3,750 2,625 15,000
5 15,000 3,750 2,100 11,250
6 11,250 3,750 1,575 7,500
7 7,500 3,750 1,050 3,750
8 3,750 3,750 525 -
SYNDICATED LOANS
Lead bank/Manager
Bank CBank BBank A
Borrower
Under writer
THANK YOU

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Term loan financing

  • 1. TERM LOAN FINANCING Group Members: Harshit Parekh Priyankar Chakraborty Sangita Karar
  • 2. AGENDA  Modes of Financing  Purpose of Term Loans  Types and Features of Term Loans  Procedures Associated with Term Loans  Pros and Cons of Term Loans  Appraisal of Project  Repayment Schedule  Syndicated Loans
  • 3. Reinvestment of Profits Loans from CBs/ FIs Public Deposits Risk Capital Issue of Shares Issue of Debentures MODES OF FINANCING
  • 4. PURPOSE OF TERM LOANS Capital Expenditure New Industrial Undertaking Expansion of Existing One Acquisition of Movable Assets
  • 5. DIFFERENT TYPES OF TERM LOANS Long Term Loans Intermediate Term Loans Short Term Loans
  • 6. FEATURES OF TERM LOANS • Currency- Financial Institutions provide both rupee as well as foreign currency term loans • Security- Term loans typically represent secured borrowing • Interest Payment and Principal Repayment- These are definite obligations that are payable irrespective of the financial situation of the firm • Restrictive Covenants- In order to protect their interests, FIs impose restrictive conditions on the borrowers
  • 7. PROCEDURES ASSOCIATED WITH TERM LOANS Submission of Loan Application Initial Processing of Loan Application Appraisal of the Proposed Project Issue of Letter of Sanction Acceptance of T&Cs Execution of Loan Agreement Creation of Security Disbursement of Loans Monitoring
  • 8. • Flexibility – Term loans are more flexible as it better accommodates changes to a person’s budget due to unexpected life or business changes • Interest – Term loans usually have a fixed interest rate, but it varies from bank to bank • Penalty Agreements • Predictability • Assumption of Assets – Term loans is used to get the capital needed, to generate additional funds that will pay off the loan Pros and Cons of Term Loans
  • 10. TECHNICAL FEASIBILITY • It should attempt to determine whether technical requirements of the project can be met or not • It should cover whether the projected product mix can be manufactured or not • The involvement of the appraisers would depend on the technology used
  • 11. • It is an assessment of the projection of the firm’s sales • It has a bearing on the earning capacity of the project • A bank prefers loans where there is a large gap between the supply and the current demand • The prime attention is that the project survives the three stages of business ECONOMIC VIABILITY
  • 12. • It involves financial evaluation • It involves judging financial soundness • Sensitivity Analysis • SWOT Analysis FINANCIAL VIABILITY
  • 13. • Proposed organisation set-up • Experience of the promoters • Details of the key personnel to be associated with the project • Existing/Proposed BOD MANEGERIAL COMPETENCE
  • 14. REPAYMENT SCHEDULE • Term loans by FIs are generally repayable in equal semi-annual, quarterly or annual installments • The interest burden may decline over time but the principal repayment may remain the same • The DSCR is the determining factor in fixing the repayment period and quantum of periodical installments
  • 15. REPAYMENT SCHEDULE The firm negotiates a Rs. 3 crore loan at 14% for eight years Year Loan at the beginning Principal Repayment Interest Loan at the end of the year of the year 1 30,000 3,750 4,200 26,250 2 26,250 3,750 3,675 22,500 3 22,500 3,750 3,150 18,750 4 18,750 3,750 2,625 15,000 5 15,000 3,750 2,100 11,250 6 11,250 3,750 1,575 7,500 7 7,500 3,750 1,050 3,750 8 3,750 3,750 525 -
  • 16. SYNDICATED LOANS Lead bank/Manager Bank CBank BBank A Borrower Under writer