Why this matters for a business borrower
When you borrow to solve a cash flow problem, the last thing you need is a new monthly repayment eating into the same cash flow. That's why Equity Tap lets you handle interest for up to the first six months in a way that means no scheduled payments in that period. The interest is not waived. It's either paid up front out of the loan, or added to the loan balance and paid at the end.
Equity Tap lends from $50k to $5m for one to twelve months, secured over residential or commercial property anywhere in Australia. Repayments are interest only, or interest for up to the first six months can be prepaid or capitalised.
The three ways interest can be handled
| Option | How it works | Scheduled payments | Suits |
|---|---|---|---|
| Interest only | You pay interest each month, the loan amount is repaid at the end | Monthly interest | Businesses with steady cash flow |
| Prepaid interest | Interest for up to six months is deducted from the loan when it's paid out | None during the prepaid period | Owners who want certainty and nothing to pay while they fix the problem |
| Capitalised interest (added to the loan) | Interest for up to six months is added to the loan balance as it accrues | None during that period | Owners who need the full net advance now and will repay from the exit |
Two numbers to understand
Net advance is the money that actually lands in your account (or is paid to the ATO, a supplier or a vendor on your behalf) on settlement.
Total repayable is what you owe at the end of the term when your exit happens.
How you handle interest changes the relationship between these two numbers, so it's important to look at both on your term sheet.
A worked illustration, without the numbers
Let's say a business owner needs to pay a supplier and takes a six-month loan. To keep it simple, we'll describe the amounts in words rather than figures, because every loan is priced on its own circumstances.
Option A: prepaid interest
- The loan is approved for a set amount, call it the loan amount.
- Six months of interest is worked out up front and deducted at settlement, along with any costs.
- The net advance is the loan amount, less the prepaid interest and costs. So the owner receives a bit less than the loan amount.
- For six months there's nothing to pay.
- At the end, the total repayable is the loan amount, because the interest was already paid.
If the owner needs a particular sum in hand, the loan amount is set a little higher so that, after the prepaid interest is deducted, the net advance covers it.
Option B: interest added to the loan
- The loan is approved and the owner receives the net advance, which is the loan amount less any costs. No interest is deducted up front.
- Each month, the interest is added to the loan balance rather than paid.
- For six months there's nothing to pay.
- At the end, the total repayable is the original loan plus all the interest that was added, so the balance has grown over the term.
Both options mean no scheduled payments during the period. The difference is when the interest comes out: at the start, from the money you receive, or at the end, from your exit.
Which option suits you?
- Choose prepaid if you like certainty and know the exact total you'll repay from day one.
- Choose capitalised if you need as much as possible in hand now and your exit comfortably covers the larger end balance.
- Choose interest only if your cash flow can handle a monthly payment and you want to keep the end balance down.
Whichever you choose, the exit needs to cover the total repayable. That's why we always talk about how you'll repay before you proceed. See our exit strategy guide.
What happens after six months?
Interest can be prepaid or added for up to the first six months. If your loan term is longer, the remaining months are interest only. Many borrowers set the term to finish around when their exit is expected, so the loan is repaid within the prepaid or capitalised period. Short-term means you only have the money for the time you need it.
For example
For example, a builder waiting on a large progress claim needs funds for materials and wages now. With a four-month second mortgage and interest added to the loan, they receive the full net advance, make no payments while the job runs, and repay the total from the progress claim when it arrives. Read more on second mortgage business loans or the working capital guide.
Clear costs before you sign
We're an ethical lender. Before you proceed, we make sure you fully understand the loan, the costs and the exit, including the net advance and total repayable. Each loan is priced on your individual circumstances, aiming for the sharpest rate available for your situation, with the full cost shown before proceeding.
Call 1300 123 024 or apply online to talk through which interest option suits your business.
Business-purpose lending only. Approval, timing and terms depend on the scenario.
Frequently asked questions
What is prepaid interest on a business loan?
What does capitalised interest mean?
Is the interest waived if I don't make payments?
What's the difference between net advance and total repayable?
Why would I receive less than the loan amount?
Can I prepay interest for the whole loan term?
Which option is cheaper?
Brokers: send the scenario through the Equity Tap broker channel and you will deal with the same lending team.