It is no secret that the correct type of financing unlocks the potential to accelerate business growth. While there are many financing alternatives accessible for businesses today, a term loan is generally preferred by those who wish to infuse capital for a specific purpose. It refers to one-time financing that is paid back over a set repayment tenure (typically one to five years) and terms (that is, at a fixed interest rate). Term loans can be both secured and unsecured loans.
As businesses resume their growth trajectory in 2021 post the widespread consequences of the pandemic, here is a look at companies that would benefit from a term loan
Businesses looking at adding critical assets
Investing in machinery and equipment is essential for some businesses to optimize productivity. A term loan could help in updating current equipment or purchasing new equipment. Depending on the nature of business and assets, companies can consider leasing assets instead of outright purchase.
However, it may help explore equipment loans and equipment financing options if the purpose is solely adding on the new assets. If the addition is to be accompanied by a fund requirement for other set-up and establishment costs like procuring land and building, construction, furnishing, a term loan may be a good option.
Companies that wish to future-proof themselves
The uncertainty of the pandemic has led many businesses to think about how they could meet unexpected future challenges. For example, some companies may want to integrate their network operations on a cloud-based system. Some may want to set up an e-shop and invest more in expanding their digital presence. The upfront set-up costs and licensing fees for the same could be funded by a term loan.
Additional Read: Grow your business with a Term loan in 2021
Businesses enhancing production capacity
An increase in production capacity could be the need of the day for some businesses. Several industries have seen a spike in demand after COVID, including pharmaceutical, ed-tech, specialty chemicals, FMCG, and medical device manufacturers. Players in these industries cannot meet the current rise in demand due to a lack of production facilities.
A term loan could fund expansion in production without adding stress to the capital reserves. Companies could use the loan for investing in the addition of plant and machinery, acquisition of suppliers or competitors, which would ultimately lead to increased output.
Additional Read: Everything You Need to Know about a Term Loan
Companies targeting geographical expansion
Expanding services to other areas requires massive upfront investments. For example, a home-cleaning service business may want to offer their services in another city.
Term loans can help companies establish the infrastructure needed to operate across locations.
Businesses looking at integration
The pandemic caused a disruption in supply chains for some businesses. Many companies have now started thinking about integration. Horizontal integration is when a company acquires a similar company or competitor to expand. Vertical integration involves acquiring another company that operates before or after the acquiring company in the supply chain. Expansion, growth, and value addition being the key purpose behind such moves. A term loan could fund both these integrations to expand market reach and the presence of businesses.
Before you apply for a term loan, be clear about the objective for the same. Consider how exactly you want to employ the funds to serve the growth of your business.
Take your business to the next level by talking to one of our advisors. Tata Capital leverages decades of experience to understand your unique business needs and offer you a solution that suits your requirements. Our online application system takes the grind out of the application process, and the intuitive interface makes it easy to apply and manage your loans. Reach out to our experts to know more about our Term Loan offering.