TERM LOANS CENTS

WHAT IS A TERM LOAN?  Most commonly used by businesses  Stafford Student loans are also considered term loans  Can have “floating” or fixed interest rates  Floating: variable interest rate  points over prime  Prime Rate: index of bank rates  Wall Street Journal’s Prime Rate Index (industry standard)  Monthly or quarterly repayments  Two types  Short-term loans  Long-term loans

INTEREST RATES & FEES  Interest rates very greatly and are dependent on:  Risk  Length of the loan  Loan use  Rates & fees tend to be lower than other types of loans  Interest rates:  Fixed  Floating  Fees  Typically 1%

SHORT & LONG-TERM LOANS  Term: typically 1-3 years  May be a line of credit or may be tied to a specific purchase  Line of credit: usually a fixed interest rate at 2.5 points over prime  New businesses typically use these loans:  Working capital  Equipment purchases  Application process: very thorough review of applicant’s personal and/or business credit history and any business plans  Payment schedule: typically monthly, but may be quarterly  Term: typically 1-7 years, but may be longer  Interest rates may be floating or fixed  Generally about 3 points over prime  Typically used by businesses to make larger capital purchases, equipment, or projects  Lender may require collateral  Application process: very thorough review of business credit history and business plan  Payment schedule: may be monthly or quarterly

PENALTIES  Prepayment (Defeasance fee):  A fee assessed for full payment before the date of maturity  Some states prohibit this practice  Acceleration:  Loan becomes due immediately upon violation of a loan term or condition

TERMS & CONDITIONS  May place limitations on financial liabilities that may be assumed  Debts  Dividends  Salaries  May require a percentage of profits are earmarked for repayment  May require a personal guarantee on the loan  May include a “balloon” payment when the loan matures

SUGGESTIONS  Start with lenders you have a history with  Do your homework  Shop around for the loan that suits your needs and has the best rates and fees  Consult your resources: friends, family, colleagues, newspaper, internet, Small Business Administration  Mind your C’s:  Character  Capacity  Capital  Collateral  Confidence

QUESTIONS?