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Term Loans provide debt financing for an
extended period of time, typically  between
1 to 7 years. These types of loans can be used to purchase equipment,
vehicles, finance acquisitions or expand current facilities.
Typically Term Loans are secured through fixed assets such as
machinery, plant and equipment. On the borrower’s financial
statement, the portion of a Term Loan maturing within one year
from the date of the statement is shown as a current liability
and the balance as long-term debt. Companies use term loans
when ownership of the asset is an important consideration.
As an alternative to a Term Loan, operating and finance lease
arrangements can be structured in order to finance machinery
and equipment. Leasing offers the possibility of substantial
tax saving, accelerated depreciation, 100% tax write off of
payments, avoiding AMT (Alternative Minimum Tax), keeping debt
off the balance-sheet, improving liquidity, working capital
ratios, return on capital and on assets.
Term Loans are most often granted as part of a total financing
package that would include a line of credit.
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