Term Loans for MSME Capital Expenditure
Structured medium to long-term business loans for machinery, equipment, infrastructure and facility upgrades. Cash-flow aligned repayment.
What Is a Term Loan for MSME?
A term loan is fundamentally different from working capital finance. Where working capital funds the recurring, day-to-day cash cycle, a term loan finances capital expenditure — a one-time or defined investment in an asset — repaid on a fixed schedule over an agreed tenure.
Term loans are typically classified by duration: short-term (up to 1 year), medium-term (1–5 years), and long-term (5 years and beyond), with the classification guiding both pricing and repayment structure.
Term loan appraisal centres on the debt-service coverage ratio (DSCR) — a measure of how comfortably a business's projected cash flow can service the proposed EMI. A healthy DSCR signals that the asset being financed is likely to generate enough incremental cash flow to support repayment without straining the business's existing operations.
DSCR is one of the most closely watched metrics in term loan appraisal — it tells a lender not just whether a business earns enough today, but whether the specific investment being financed will help it earn enough to repay comfortably tomorrow.
Term Loan Use Cases Across Different Sectors
Different businesses have different capital expenditure requirements. A term loan can be structured around the asset being financed and the additional business capacity it is expected to generate.
Manufacturing
CNC machinery, automation upgrades, and production line expansion, financed against the additional output and revenue the new capacity is expected to generate.
Trading
Warehouse construction or cold-chain infrastructure that lets a trading business hold larger inventory, serve wider geographies, and reduce spoilage or damage losses.
Services
IT systems, software infrastructure, and office setup or expansion, supporting service delivery capacity as the client base grows.
Healthcare
Diagnostic and medical equipment financing that lets clinics and healthcare providers expand service offerings without depleting working capital reserves.
Food & Agro
Processing plant machinery and cold storage infrastructure, financed around the incremental throughput and shelf-life benefits the investment delivers.
Sharan's Term Loan Service Details
Amounts & Tenures: sized to the capital expenditure requirement and the business's repayment capacity, spanning short, medium, and long-term classifications as applicable.
Repayment Schedules: reducing balance EMI, step-up repayment (where instalments rise over time), and moratorium periods (a defined gap before repayment begins), structured to fit the asset's expected revenue ramp-up.
Eligible Capex Categories: machinery and equipment, infrastructure and facility upgrades, technology and systems investment, and other defined capital expenditure with a clear business case.
| Parameter | Details |
|---|---|
| Eligible Applicants | Proprietorships, partnerships, private limited companies |
| Loan Purpose | Machinery, equipment, infrastructure, facility upgrades |
| Tenure Classification | Short-term (up to 1 year), medium-term (1–5 years), long-term (5+ years) |
| Repayment Formats | Reducing balance EMI, step-up repayment, moratorium as applicable |
| Underwriting Basis | DSCR, projected revenue uplift from the financed asset, business cash flow |
Loan structure, tenure and repayment are subject to business profile, credit appraisal and applicable approval.
Capex-Aligned Repayment: An EMI That Follows Your Asset
“Your EMI should follow your asset's ramp-up, not fight it.”
A flat EMI schedule starting on day one can strain a business before the financed asset has had time to generate returns. Sharan models the repayment schedule around the projected revenue uplift from the asset being financed, so early instalments are lighter and repayment builds up as the asset starts contributing.
A manufacturer installs new machinery expected to generate ₹10 lakh per month in additional revenue starting from month 4, once installation, trial runs, and initial output ramp-up are complete. Rather than a flat EMI from month 1, Sharan can structure a short moratorium through the installation period, followed by a step-up repayment schedule that increases as the machinery's revenue contribution builds — aligning what the business pays to what the asset is actually earning.
Illustrative Step-Up Repayment Structure
Conceptual representation of a repayment schedule following the asset's revenue ramp-up.
Illustrative visual only. Actual repayment amounts, moratorium and schedule depend on the sanctioned loan structure.
Term Loan Eligibility — Do You Qualify?
Use this quick self-check to understand whether your business is ready to discuss a term loan requirement.
Tick what applies to your business
This self-check is indicative only. Final eligibility and loan approval are subject to credit appraisal.
How to Avail a Term Loan from Sharan
The application process follows five stages, from understanding your capital expenditure requirement to disbursal and onboarding.
Initial Enquiry & Capex Discussion
Share the asset or investment you're looking to finance and your projected revenue impact.
Document & Quotation Submission
Submit KYC, business documents, and a capex quotation or proforma invoice for the asset.
Credit Appraisal & Asset Assessment
We evaluate DSCR, business cash flow, and the asset's expected revenue contribution.
Loan Structuring & Sanction Letter
Amount, tenure, moratorium (if applicable), and repayment schedule are finalised and confirmed in writing.
Disbursal & Relationship Onboarding
Funds are disbursed, typically against the asset purchase, and a dedicated relationship contact is assigned.
Documents Typically Required for a Term Loan
The following documents are typically required to begin the term loan appraisal process.
View Complete Document Checklist
- KYC documents (identity and address proof of applicant/partners/directors)
- Business registration proof (partnership deed / incorporation certificate, as applicable)
- Capex quotation or proforma invoice for the asset being financed
- Last 12 months' bank statements
- GST returns (where applicable)
- Latest financial statements, if available
Frequently Asked Questions
1. What is the difference between a term loan and a lease?
A term loan finances the purchase of an asset, which you own from the outset while repaying the loan over time. A lease typically involves paying for the use of an asset over a period, with ownership terms varying by lease structure.
2. Is a moratorium period available on term loans?
A moratorium — a defined gap before EMI repayment begins — may be structured where the financed asset needs an installation or ramp-up period before it starts generating revenue, subject to assessment.
3. Is there a prepayment penalty on term loans?
Prepayment norms vary by loan structure and are detailed clearly in the sanction letter before you sign, in line with Sharan's transparent, no-hidden-charges approach.
4. What is the difference between collateral and hypothecation?
Collateral generally refers to an asset pledged as security for a loan. Hypothecation is a specific form of security where the financed asset itself — such as machinery — is charged to the lender without transferring possession, common in equipment and machinery loans.
5. Can I claim GST input credit on a machinery loan purchase?
GST input credit eligibility on machinery purchases depends on your business's GST registration status and the asset's use in your taxable business activity. We recommend confirming applicability with your tax advisor or chartered accountant.
6. How is my term loan tenure decided?
Tenure is set based on the asset's useful life, the capital expenditure amount, and your business's projected cash flow and DSCR, balancing manageable EMIs with a reasonable repayment period.
Invest in Your Business's Next Stage — Talk to a Term Loan Specialist.
Discuss your machinery, equipment, infrastructure or other capital expenditure requirements with Sharan Financial Services.