Term Loan

A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years.

Investopedia Says:
For example many banks have term-loan programs that can offer small businesses the cash they need to operate from month to month. Often a small business will use the cash from a term loan to purchase fixed assets such as equipment used in its production process.

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Fixed-term business loan with a maturity of more than one year, providing an organization with working capital to acquire assets or inventory, or to finance plant and equipment generating cash flow. The term loan is the most common form of intermediate-term financing arranged by commercial banks, and there is wide diversity in how it is structured. Maturities range from one year to 15 years, although most term loans are made for one- to five-year periods. Term loans are paid back from profits of the business, according to a fixed amortization schedule. Term loans may be secured or unsecured, and carry a rate based on the lender's cost of funds, the federal funds rate, LIBOR, or the bank Prime Rate. Loan interest normally is payable monthly, quarterly, semiannually, or annually.

Most business loans contain both affirmative and restrictive Covenants that impose certain conditions on the borrower that permit acceleration of the maturity if the loan conditions are violated. The lender may, for example, restrict cash dividends paid and loans taken out by corporate officers, and usually will require the borrower to maintain the business in good order, keep adequate insurance, and file quarterly financial statements with the bank. Larger borrowings often are financed by several banks through a Syndication arrangement. See also Demand Loan; Secured Loan; Security Agreement; Security Interest.

One with a set maturity date, typically without Amortization.
Example: Terry purchased a tract of land for $15,000, and borrowed $10,000 from a lender with a 5-year term loan. The interest rate is 8%, payable annually; the entire principal is due at the end of the 5-year term.

Intermediate- to long-term (typically, two- to ten-year) business loans with provisions for systematic repayments (amortization during the life of the loan). The repayment or amortization schedule is a particularly important feature of such loans. Amortization protects both the lender and borrower against the possibility that the borrower will not make adequate provisions for retirement of the loan during its life. The term loan sometimes ends with a balloon payment.