Term Loan by crazysid

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Basics about Term Loan which will make our life easier to get finances.

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									            Project Financing
            Means of Finance
•   Equity Capital
•   Preference Capital
•   Retained earning
•   Debt Capital (Debentures or Bonds)
•   Term Loans
•   Venture Capital
•   Lease Financing and Hire Purchase
•   External source
               Term Loan
• It is a long term debt provided by
  commercial banks and / or financial
  institutions mainly to acquire fixed assets
  for a project
      Features of Term Loan
• It is a type of debt financing
• FIs provides Rupee TL and foreign
  currency TL
• Mainly for investment in fixed assets
• Also for getting technical know how,
  preliminary expenses and margin money
  for working capital
• Foreign currency term loan for import of
  plant and machinery
       Features of Term Loan
• Assets which are financed with TL is the
  prime security
• Other assets of the firm can be collateral
• Repayable in equal half yearly or quarterly
  installment
• Interest rate charged is as per credit risk of
  the project
• In case of default of payment penal
  interest is charged
       Features of Term Loan
• In a typical term loan, principle amount remains
  constant, but interest burden declines over a
  period of time
• Various restrictive clause may be applied on
  borrower
  – Refrain from undertaking any new project without
    approval of the FI
  – Refrain from additional borrowings without consent of
    FI
  – Nominee Director on the board
          Term Loan procedure
• Submission of loan application with Project
  Report
• Project Report contains
  –   Promoters’ background
  –   Particulars of the firm
  –   Particulars of the project
  –   Cost of the project
  –   Means of financing
  –   Marketing and selling arrangements
  –   Profitability and cash flow
  –   Government consent
       Term Loan procedure
• Initial processing of loan application
  – Additional information may be asked
• Detailed appraisal of proposed project
  – Marketing, technical, financial, managerial
    and economic appraisal
• Issue of letter of sanction
• Acceptance of terms and conditions by the
  borrower
  – By passing appropriate resolution
       Term Loan procedure
• Execution of loan agreement
  – FI sends the draft agreement to the borrower
    which is to be signed and stamped by the
    borrower
• Creation of charge over security
  – Creation of mortgage, deposit of title deeds
    and hypothecation of movable property
       Term Loan procedure
• Disbursement of loans. Borrower is
  required to submit following information
  – Physical progress of the project
  – Financial status of the project
  – Contribution made by promoters
  – Projected fund flow statement
  – Compliance of statutory requirements
• Based on such information disbursement
  of loan amount is decided
        Term Loan procedure
• Monitoring of Loan
  – It is done at two stages, implementation stage and
    operational stage
• Implementation stage monitoring
  – Regular reports from promoters
  – Periodic site visit
  – Progress report submitted by nominee director
• Operational stage monitoring
  – Quarterly progress report
  – Periodic site visit
  – Progress report submitted by nominee director

								
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