Repayments

Principal and interest payments are typically made each month for 36 months.

Some companies prefer to fix the monthly payment amount (it’s a bit easier to remember and track the payment) which means that the earlier payments will be mostly interest and later payments will be mostly principal.

Others prefer to pay the same principal amount each time which means the interest will vary (decrease) each month.

Either method is fine and the choice has a minimal impact on total interest/principal paid over the life of the loan.

The repayments may include a principal payment holiday, also known as an interest-only period. A typical structure will be a 36 month loan with interest-only payments in the first six months followed by 30 months of principal and interest payments. If the company has twelve months of operating cash at funding, a venture loan might extend the runway six months. The six months of interest-only may provide an additional three months of extended runway for a total of nine months.

Interest only periods add risk for the lender. Before offering this option the lender will need additional comfort that the company will continue to perform and the funding syndicate is solid.