On the balance sheet, the equipment purchased shows up in the long term assets section, while the counterpart loan information is shown in the current and long term liabilities portions. The useful life of the assets is directly reflected in their depreciation schedules. A written business plan , including a cash flow demonstrating the business ability to repay the loan principal and interest over the term of the repayment schedule, is mandatory. The lender will expect you to have appropriate insurance to protect the assets.
Loan carries both interest and principal repayment provisions in a set repayment schedule.
Early repayment may entail a penalty because the lender had not planned an alternate investment for that money. The percentage interest rate normally remains constant for the term of the loan. Each payment of principal reduces the balance of principal remaining and the subsequent interest is calculated on this reducing balance. Different lenders make different types of term loans. A promissory note is a written promise to pay a specified sum of money to the lender either on demand or on a specified date.