Term loans look primarily to the flow of future earnings of the borrowing business firm to amortize and retire its loan.

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Term loans are long-term loans that are usually paid off in regular installments over several years. Unlike short-term loans, term loans rely on the future cash flow of the business to repay the loan. The borrower must show that they have the ability to generate sufficient cash flow to meet their loan obligations. Therefore, it is true that term loans look primarily to the flow of future earnings of the borrowing business firm to amortize and retire its loan.

Term Loans Look Primarily to the Flow of Future Earnings