Not all loans have a fixed borrowing limit. A delayed draw term loan is an alternative form of debt financing that allows business owners to draw additional funds during the course of the loan. As a business owner, you’re bound to encounter some unforeseen expenses. Maybe a piece of equipment breaks down and you’re forced to replace it, or perhaps you need to recruit new employees to satisfy your business’s growth. With a delayed draw term loan, you can draw additional funds to cover these expenses.
What Is a Delayed Draw Term Loan?
A delayed draw term is a type of business loan from which you can draw additional funds after the initial closing.
With a traditional business loan, you’ll receive the full amount upfront. With a delayed draw term loan, you’ll receive partial amounts over time. You can draw from the delayed draw term loan during the course of the loan to cover your business’s expenses.
How a Delayed Draw Term Loan Works
There are different ways to structure a delayed draw term loan. Normally, lenders structure them with predetermined draws. In other words, you can’t just draw funds whenever you choose; you’ll have to draw funds on specific dates or at specific times.
Many lenders also have requirements that borrowers must meet to be eligible for the draws. The lender may require your business to meet certain financial milestones, for instance. You’ll only be able to draw funds from the delayed draw term loan if your business meets the required milestone or milestones.
Ticking Fees Explained
Most lenders charge a ticking fee for delayed draw term loans. Ticking fees are based on the undrawn amount of a delayed draw term loan, and it typically increases over time. Once you’ve fully drawn the entire amount of the delayed draw term loan — or the loan has been terminated — you’ll no longer have to pay the ticking fee.
Benefits of a Delayed Draw Term Loan
What are the benefits of a delayed draw term loan exactly? It’s a popular form of financing for real estate developers. When developing residential or commercial properties, you may need access to funds in different stages. With a delayed draw term loan, you can draw funds incrementally to meet your business’s financing needs.
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.