Medium Term Loans: Benefits, Eligibility Criteria, Documents Required, and How to Apply

In the dynamic world of business, having access to timely financial resources is crucial. Medium-term loans offer a balanced solution for businesses seeking funding without the immediate pressure of short-term loans or the long commitment of long-term loans. Typically ranging from one to five years, these loans provide flexibility and manageable repayment schedules. Whether you're looking to purchase equipment, expand operations, or manage cash flow, understanding how medium-term loans work can help you make informed financial decisions.

How does a medium-term loan work?

A medium-term loan is a financial product that provides businesses with capital for a specific purpose, to be repaid over a period of one to five years. Here's how it works:

• Loan amount: Varies based on the lender and the borrower's creditworthiness.
• Interest rates: Typically fixed or variable, depending on the agreement.
• Repayment schedule: Monthly, quarterly, or semi-annual instalments.
• Collateral: May or may not be required, depending on the lender's policies.

These loans are ideal for financing projects that require a moderate amount of time to complete and generate returns. If you're interested in checking your financing options, you can also check your pre-approved business loan offer, which may provide a faster path to securing funds.

Benefits of medium-term loans

Medium-term loans offer several advantages for businesses:

• Flexible repayment terms: Allows businesses to manage cash flow effectively.
• Lower interest rates: Compared to short-term loans, medium-term loans often have more competitive rates.
• Larger loan amounts: Suitable for significant investments like equipment purchase or facility expansion.
• Predictable payments: Fixed repayment schedules help in budgeting and financial planning.

These benefits make medium-term loans an attractive option for businesses with medium-term financial needs.

Eligibility criteria for medium-term loans

To qualify for a medium-term loan, businesses typically need to meet the following criteria:

• Business vintage: At least 1–2 years in operation.
• Credit score: Generally, a score of 700 or above is preferred.
• Annual revenue: Varies by lender; however, a consistent revenue stream is essential.
• Business plan: A clear plan outlining the purpose of the loan and expected outcomes.

Meeting these criteria increases the likelihood of loan approval and favourable terms.

Interest rate and charges for medium-term loans

Interest rates and charges for medium-term loans can vary based on the lender and the borrower's profile:

Lender type	Interest rate (p.a.)	Processing fee
Banks	8% – 12%	0.5% – 2%
NBFCs	10% – 18%	1% – 3%
Online Lenders	12% – 24%	1% – 2.5%

Note: Rates and fees are indicative and may vary. Always check with the lender for the most accurate information.

Documents required to apply for a medium-term loan

The documentation required for a medium-term loan application typically includes:

• Identity proof: PAN card, Aadhaar card, passport, or voter ID.
• Address proof: Utility bills, passport, or Aadhaar card.
• Business proof: GST registration, trade license, or partnership deed.
• Financial statements: Income Tax Returns (ITR) for the last 1–3 years.
• Bank statements: Last 6–12 months of bank statements.
• Business plan: A detailed plan outlining the loan's purpose and expected outcomes.

Having these documents ready can expedite the loan application process.

Medium-term loan vs. other types of loans

Understanding the differences between medium-term loans and other loan types can help businesses choose the right financing option:

Loan type	Term length	Ideal for	Interest rates
Short-term loans	Up to 1 year	Immediate working capital needs	Higher
Medium-term loans	1 – 5 years	Equipment purchase, expansion	Moderate
Long-term loans	5+ years	Large-scale investments	Lower

Each loan type serves different business needs, and selecting the appropriate one depends on the specific requirements and financial situation of the business.

Easy steps to apply for a medium-term loan

Applying for a medium-term loan involves the following steps:

• Assess your needs: Determine the amount required and the purpose of the loan.
• Check eligibility: Ensure your business meets the lender's criteria.
• Gather documents: Prepare all necessary documentation.
• Choose a lender: Compare different lenders to find the best terms.
• Submit application: Complete the application form and submit the documents.
• Await approval: The lender will review your application and notify you of the decision.
• Receive funds: Upon approval, the loan amount will be disbursed to your account.

Following these steps can streamline the loan application process.

Conclusion

Medium-term loans provide businesses with the necessary capital to invest in growth opportunities without the immediate pressure of short-term loans or the long commitment of long-term loans. By understanding how these loans work, their benefits, eligibility criteria, and the application process, businesses can make informed decisions that align with their financial goals. For businesses seeking tailored financing solutions, business loan offers competitive interest rates and flexible terms to support your business growth. Check your business loan eligibility today and explore your pre-approved business loan offer to see how quickly you can access the funds needed for growth.