Term Loans provide debt financing for an extended period of time, typically between 1 and 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.