4. Term loans

Loan contracts are set for different time periods. Contracts that mature between 1 to 10 years are called intermediate-term credit, or term loans.

When firms need capital, they resort to different financing options. One method of raising capital is through the use of term loans. Term loans are most likely to be used because term loans are stocks and bonds.

Hack Wellington Co. (HWC) plans to take out a five-year term loan from a commercial bank for $4,000,000 at a stated interest rate of 10%. The contract of the term loan requires that the borrower makes payments toward the principal of $400,000 every year for four years, along with the interest on the balance remaining each year. The contract requires HWC to pay off the balance at the end of the fourth year.

Calculate the total payments that HWC will make each year and complete the amortization table with equal annual reductions in principal.

Year	Principal Paid	Interest Paid	Total Payment	Remaining Balance
1	$400,000
2	$400,000
3	$400,000
4	$400,000
5				$0

Loans, such as the one described in this case, in which the borrower is required to pay periodic payments for a certain number of years in the loan term and settle the balance amount at the termination of the loan are called .

Hack Wellington Co. is exploring options to borrow the loan amount from different lenders such as commercial banks, savings and loan associations, life insurance companies, pension funds, Small Business Administration (SBA), small business investment companies (SBICs), and industrial development authorities (IDAs).

Which of the following lenders tend to favor longer-term commitments?

Commercial banks and savings and loan associations

Life insurance companies and pension funds