What is a term loan?
A term loan is a long-term loan that is typically used to finance capital expenditures, such as the purchase of land, buildings, or equipment. Term loans are typically repaid over a period of 5 to 15 years.
What is the purpose of project appraisal term loan?
The purpose of project appraisal term loan is to assess the viability of a project before a loan is granted. The lender will need to be confident that the project is technically feasible, economically viable, and financially sound in order to approve the loan.
What are the factors considered in project appraisal term loan?
The following factors are considered in project appraisal term loan:
- Technical feasibility: The lender will need to assess whether the project is technically feasible and that the borrower has the expertise to implement it.
- Economic viability: The lender will need to assess whether the project is economically viable and that it will generate enough revenue to repay the loan and generate a profit.
- Financial soundness: The lender will need to assess whether the borrower has the financial resources to repay the loan and that the project is not too risky.
What are the different types of project appraisal term loan?
There are two main types of project appraisal term loan:
- Project finance: This type of loan is used to finance large, complex projects that require significant upfront investment. The loan is typically secured by the project assets and the borrower’s future cash flows.
- Stand-alone loan: This type of loan is used to finance smaller projects that do not require significant upfront investment. The loan is typically secured by the borrower’s assets and the borrower’s personal guarantees.
What are the advantages of project appraisal term loan?
The following are some of the advantages of project appraisal term loan:
- Term loans can provide borrowers with the long-term financing they need to implement large, complex projects.
- Term loans can be secured by the project assets, which reduces the risk to the lender.
- Term loans can be tailored to the specific needs of the project, such as the length of the repayment period and the interest rate.
What are the disadvantages of project appraisal term loan?
The following are some of the disadvantages of project appraisal term loan:
- Term loans can be expensive, especially if the project is risky.
- Term loans can be difficult to obtain, especially for small businesses or start-ups.
- Term loans can be tied up in the project assets, which can make it difficult for the borrower to access the funds for other purposes.
MCQs on project appraisal term loan
- Which of the following is not a factor considered in project appraisal term loan?
- Technical feasibility
- Economic viability
- Financial soundness
- The borrower’s credit history
- The answer is the borrower’s credit history. Credit history is considered in the credit appraisal process, but not in the project appraisal term loan process.
- Which type of loan is used to finance large, complex projects that require significant upfront investment?
- Project finance
- Stand-alone loan
- Both project finance and stand-alone loan
- Neither project finance nor stand-alone loan
- The answer is project finance. Project finance is used to finance large, complex projects that require significant upfront investment.
- Which of the following is an advantage of project appraisal term loan?
- Term loans can provide borrowers with the long-term financing they need to implement large, complex projects.
- Term loans can be secured by the project assets, which reduces the risk to the lender.
- Term loans can be tailored to the specific needs of the project, such as the length of the repayment period and the interest rate.
- All of the above
- The answer is all of the above. Term loans offer a number of advantages to borrowers, including long-term financing, asset security, and flexibility.