Term Loans are a structured form of borrowing which is frequently intended for general corporate purposes and may be intended to finance specific transactions, specific assets and the funding requirements that this generates. They are intended for the financing of longer term borrowing requirements as opposed to overdrafts that are for the financing of short-term working capital requirements.
Drawings against the loan are usually made in one amount, (but not necessarily) and once the entire loan is drawn, further drawings are not permitted even if repayments have reduced the principal amount. Therefore, the limit should be reduced as repayments are received. However, it should be noted that the loan may be phased to reflect the underlying transaction, in these instances the limit is managed in line with the drawings.
Drawings depend on the nature of underlying financing requirement of the client; at times they could be linked to specific events or milestones. Interest is charged on the outstanding balance at an agreed rate and repayment of principal may be made in instalments or by bullet repayments, according to expected cash flow and a pre-agreed schedule. Interest is charged on outstanding balances. Repayment is typically made by fixed monthly, quarterly or annual repayments dependent upon the nature of the underlying transaction, the cash flow it generates and the loan agreement.