Term loan

A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years. A term loan involves paying interest with the interest amount being added to the amount that needs to be repaid. The interest rate which could fixed or floating is often based on the borrower's credit rating and when floating is often based on a benchmark rate such as EURIBOR, SOFR or a similar benchmark rate.

Term loans are normally business loans and are in contrast to a line of credit or short term demand loans.^[1] The ability to repay over a long period of time can be attractive for new or expanding enterprises, as the assumption is that they will increase their profit over time thus being able to repay the loan.^[2] Term loans are a way for a business to quickly increase capital in order to raise a business’ supply capabilities or range. For instance, a new companies may use a term loan to buy a company vehicles or rent more space for their operations. Term loans may be raised in issuance to a borrower in the form of bank-syndicated debt, or the institution market. Institutional Term Loans, or rather those that trade on secondary exchanges are commonly referred to as "Term Loan B". These facilities are typically 7 years and lack financial covenants. In US law-governed loan transactions, they are considered senior debt and usually not subordinated to other indebtedness.