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Step-Up/Step-Down Schedule

A step-up/step-down schedule on a business loan refers to a repayment structure where the loan payments either increase (step-up) or decrease (step-down) over time, based on predefined terms. This type of schedule is designed to accommodate the borrower's anticipated cash flow changes or specific financial circumstances throughout the life of the loan.


In a step-up loan, the borrower makes smaller payments at the beginning of the loan term, with payments increasing gradually over time. This structure is often used when a business expects its cash flow or profits to grow in the future, allowing it to handle larger payments as revenue increases.


In a step-down loan, the borrower makes larger payments early in the loan term, with payments decreasing gradually over time. This structure is beneficial for businesses with strong cash flow that is expected to shrink or stabilize over time.


Benefits

  • Cash flow management: Repayment schedules align loan payments with a business's expected future cash flow, helping to improve cash flow and reduce financial strain. 

  • Accommodating growth: Companies planning to invest the loan into growth initiatives that will increase revenues can make smaller payments in the beginning and larger payments toward the end of the loan, when cash flow is expected to be greater. 

  • Flexibility: Step-up/step-down loans provide flexibility compared to traditional amortizing loans with fixed monthly payments, giving businesses the ability to adapt their loan payments based on changing financial conditions.


Step-up and step-down loans are often a great fit for growing startups as well as businesses with uneven cash flow or seasonal sales cycles. Though they do offer businesses added flexibility, they require careful planning to ensure repayments align with future financial conditions.

Financial Glossary

Use Lighter Capital's glossary to understand common terms used in finance and investing, so you can build financial literacy and make informed decisions for your startup.

Step-Up/Step-Down Schedule

A step-up/step-down schedule on a business loan refers to a repayment structure where the loan payments either increase (step-up) or decrease (step-down) over time, based on predefined terms. This type of schedule is designed to accommodate the borrower's anticipated cash flow changes or specific financial circumstances throughout the life of the loan.


In a step-up loan, the borrower makes smaller payments at the beginning of the loan term, with payments increasing gradually over time. This structure is often used when a business expects its cash flow or profits to grow in the future, allowing it to handle larger payments as revenue increases.


In a step-down loan, the borrower makes larger payments early in the loan term, with payments decreasing gradually over time. This structure is beneficial for businesses with strong cash flow that is expected to shrink or stabilize over time.


Benefits

  • Cash flow management: Repayment schedules align loan payments with a business's expected future cash flow, helping to improve cash flow and reduce financial strain. 

  • Accommodating growth: Companies planning to invest the loan into growth initiatives that will increase revenues can make smaller payments in the beginning and larger payments toward the end of the loan, when cash flow is expected to be greater. 

  • Flexibility: Step-up/step-down loans provide flexibility compared to traditional amortizing loans with fixed monthly payments, giving businesses the ability to adapt their loan payments based on changing financial conditions.


Step-up and step-down loans are often a great fit for growing startups as well as businesses with uneven cash flow or seasonal sales cycles. Though they do offer businesses added flexibility, they require careful planning to ensure repayments align with future financial conditions.

For more than a decade, Lighter Capital has invested in helping early-stage tech startups succeed on their terms. Explore our small-but-mighty (and always expanding) library of founder resources to level-up your financial IQ, fine-tune your growth strategies, and lead your startup towards a lucrative exit.

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Lighter Capital is the largest provider of non-dilutive debt capital to start ups. Over the past decade, we’ve invested hundreds of millions of dollars into growth companies.

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Lighter Capital's non-dilutive financing provides startups with a quick upfront injection of growth capital based on the business's recurring revenue streams. That means you get to keep your equity and control of the business, and your loan payments are right-sized to what the business can support. Our financing also scales with you as you grow. Apply online to find out how much you may qualify for.

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