Balloon Payments for Business Loans: What You Should Know

Estimated read time 3 min read

Business loans offer a simple and convenient form of financing. Regardless of the industry or market in which your business operates, you can finance it with a loan. Business loans consist of money borrowed from a lender. Banks offer business loans, and many private lenders offer them as well. Rather than waiting until the end of the term, though, you may want to pay off your business loan early by making a balloon payment,

Balloon Payments for Business Loans: What You Should Know

What Is a Balloon Payment?

A balloon payment is a loan payment consisting of the remaining principle. It’s used in loans known as balloon loans. With balloon loans, borrowers are required to make regular, small payments throughout the term. Near the end of the term, however, they are required to make a single, large payment. This final payment is a balloon payment.

How a Balloon Payment Works

Even if you’re familiar with the mechanics of a traditional loan, you might be wondering how a balloon payment works. Not all loans have balloon payments. Rather, they are associated with balloon loans.

There are balloon loans for individuals, such as mortgages, and there are balloon loans for businesses. Regardless, they require regular payments over a specific period. The payments are typically monthly installments, and they cover a portion of the principal and some of the interest. Near the end of the term, borrowers must make a balloon payment to pay off the remaining principal.

A typical balloon loan consists of the following:

  • The lender provides the borrower with cash.
  • The borrower makes regular monthly payments.
  • As the end of the loan’s term approves, the borrower must pay off the loan with a single, larger payment (the balloon payment.

Benefits of Balloon Payments

Balloon payments offer several benefits, one of which is lower monthly payments. Most balloon loans require a single balloon payment near the end of the term. These balloon payments are always larger than the preceding installment payments. But if you choose a balloon loan, the installment payments will likely be less than those of a traditional loan.

Flexibility is another benefit of balloon payments. If you’re anticipating a large influx of cash in the near future, you may want to finance your business with a balloon loan. You can use the cash to pay off the loan with a balloon payment. Alternatively, you may be able to refinance the balloon loan before the balloon payment is required.

This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

Share This Blog!

You May Also Like

More From Author

+ There are no comments

Add yours

This site uses Akismet to reduce spam. Learn how your comment data is processed.