Repayment Schedule
A repayment schedule on a business loan outlines the specific details regarding how and when a borrower is required to repay the loan. The schedule is designed based on the loan's structure, which includes the principal, interest rate, and term length.
A repayment schedule breaks down the borrower’s payments into installments based on the payment frequency and duration of the loan, detailing the payment number, repayment amount, and outstanding balance. It may also include a breakdown of each payment, showing how much goes towards the interest and principal, as well as the payment date.
Repayment schedules look different for different loan structures. Here are a few different examples:
Amortizing loan: This is the most common repayment schedule for business loans. It involves making regular payments that gradually reduce the loan balance over time. Each payment includes both interest and principal, with the loan being fully paid off by the end of the term.
Loan with an Interest-only period: In an interest-only repayment schedule, the borrower pays only the interest on the loan for a specified period. After that period ends, the borrower begins repaying the principal along with interest, or a large principal repayment may be due at the end of the loan term (balloon payment).
Step-up/step-down loans: Some business loans have step-up or step-down schedules, where the payment amounts increase or decrease over time based on the business’s anticipated cash flow or growth.
Why do repayment schedules matter?
Cash flow management: Understanding the repayment schedule helps businesses plan their finances, ensuring that they have sufficient cash flow to meet their loan obligations.
Loan transparency: A repayment schedule can help borrowers understand the intricacies of the loan terms and its total cost, making additional fees like an origination fee or a balloon payment more apparent.
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Repayment Schedule
A repayment schedule on a business loan outlines the specific details regarding how and when a borrower is required to repay the loan. The schedule is designed based on the loan's structure, which includes the principal, interest rate, and term length.
A repayment schedule breaks down the borrower’s payments into installments based on the payment frequency and duration of the loan, detailing the payment number, repayment amount, and outstanding balance. It may also include a breakdown of each payment, showing how much goes towards the interest and principal, as well as the payment date.
Repayment schedules look different for different loan structures. Here are a few different examples:
Amortizing loan: This is the most common repayment schedule for business loans. It involves making regular payments that gradually reduce the loan balance over time. Each payment includes both interest and principal, with the loan being fully paid off by the end of the term.
Loan with an Interest-only period: In an interest-only repayment schedule, the borrower pays only the interest on the loan for a specified period. After that period ends, the borrower begins repaying the principal along with interest, or a large principal repayment may be due at the end of the loan term (balloon payment).
Step-up/step-down loans: Some business loans have step-up or step-down schedules, where the payment amounts increase or decrease over time based on the business’s anticipated cash flow or growth.
Why do repayment schedules matter?
Cash flow management: Understanding the repayment schedule helps businesses plan their finances, ensuring that they have sufficient cash flow to meet their loan obligations.
Loan transparency: A repayment schedule can help borrowers understand the intricacies of the loan terms and its total cost, making additional fees like an origination fee or a balloon payment more apparent.
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