30 Jun Is an interest-only period right for your business finance?
When business owners are looking at finance options, the first question is usually: “What’s the interest rate?”
That’s understandable. Nobody wants to pay more than they need to.
But having arranged funding for a range of start-ups, practice acquisitions and refinances, we’ve found the structure of the loan can be just as important as the rate.
One option that often gets overlooked is an interest-only period.
Over the past few months, we’ve seen more clients opt for this approach, particularly where cash flow is likely to be tight in the early stages of a project or acquisition.
Take a practice purchase. Completion day is often when the real spending begins, whether that’s on equipment, staffing, marketing or refurbishment.
Having lower repayments for an initial period can help free up cash for those priorities.
The same is often true for start-ups. Rather than committing to full capital repayments from day one, an interest-only period can give the business some breathing space while it settles in and grows.
Of course, interest-only doesn’t reduce the overall cost of borrowing. The capital still has to be repaid and it’s important borrowers understand the full cost of the facility.
For example, if you take a 15-year loan with a two-year interest-only period, the remaining capital is repaid over 13 years. This means monthly repayments will be higher after the interest-only period than they would have been over a straight 15-year term.
So why do clients still choose it?
Because they’re prioritising flexibility and using cash where it has the most impact in those early stages. It’s a reminder that it’s not just about the headline rate, structure matters too.
A good example of how this facility can be put to use is in a practice purchase. We often see that, following the use of practice acquisition finance, clients return for short-term borrowing to refurbish the practice or replace ageing equipment. With an interest-only loan, funds that would otherwise be allocated to capital repayments can instead be directed towards upgrading the practice, often resulting in little or no requirement for additional borrowing.
Used in the right situation, an interest-only period can support growth plans, ease early cash pressure, and give a business more room to manoeuvre at a critical stage.
It’s not about delaying repayments for the sake of it. It’s about matching the finance to the needs of the business.
If you’re exploring funding options, it’s worth thinking about structure as well as rate and whether an interest-only period could help support your plans.
We would be happy to have a chat to talk through your plans and how we can help.
Assisting with the set up, purchase and expansion of healthcare businesses is what we do.
Contact Saroma, for an initial conversation to explore your options.
