What is a Term?
In the finance world, a term is the length of time until a debt matures. A term can also be a condition of a deal, as evidenced by the phrase term sheet, which describes the terms of a deal.
How Does a Term Work?
Let's say Company XYZ wants to borrow $1 million to build a factory. It meets with its bank, ABC Bank, to negotiate the loan. The company and the bank agree to a 10-year loan with quarterly payments and a 7% interest rate. In this case, the term is 10 years.
Why Does a Term Matter?
The longer the term of a piece of lender's increased risk exposure., the lower the payments usually are. However, the interest rate may be higher due to the
In the second instance, when two companies are negotiating a deal and are working through a term sheet, one term may have more influence over the deal than another and thus may create significant sticking points.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
When it comes to stock market crashes and bear markets, the legendary Warren Buffett said it best: "Only when the...Read More →
When I went to kindergarten, it didn’t take me long to get in trouble. At the very first parent-teacher meeting, my mother was informed that I was quite a little talker in class. My teacher...Read More →