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Term Loans

Generally, term loans are raised for a period ranging form three years to twenty-five years. Term loans can be raised form the following sources:

(i)    Public deposits
(ii)    Term loans from commercial banks
(iii)    Term loans form specialized financial institutions.

In case of public deposits, maximum period cannot exceed 36months; deposits are free from any charge on company’s assets; deposits are not insured by the insurance company, and normally people deposit money in companies only during boom period. but loans form banks and financial institutions may be for a medium-term or long-term period and can be secured or unsecured.

From the point of view of the company, interest on loan is a tax deductible expense which is a benefit to the company and moreover depositors or lenders are not allowed to participate in the day-to-day management of the company. However, the company is under obligation to pay interest on loans as per terms of agreement and also return the loan amount when the term is over.

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