Term loans vary in size, structure, and use depending upon the commercial lending institution. A term loan from a bank may have very different underwriting criteria than that of a mid-prime lender that specializes in buying-out high-interest merchant cash advances. Term loans are usually collateralized with the borrowing company’s assets (building, land, equipment, accounts receivable, cash flow, etc.). While each lender has their own requirements, its common for a blanket lien to be placed on all the company’s assets when a term loan is provided to the business.
While each lender is different, a term loan provided by a conventional, private investment bank usually requires an extensive amount of business and personal financial documentation for due diligence during the underwriting of the loan. Traditional commercial lenders will require that the business prove it has an acceptable debt-service-coverage-ratio to ensure the lender will get paid back.