Why interest only suits short-term business borrowing
On a 25-year mortgage, paying down principal every month makes sense. On a loan that will be repaid in three, six or twelve months from a known event, it doesn't. Paying principal back in small monthly amounts only drains cash you could be using to run the business, while the real repayment is coming from the sale, refinance or contract anyway.
That is why every Equity Tap loan is structured as interest only, or with interest for up to the first six months prepaid or added to the loan. Equity Tap lends from $50k to $5m for one to twelve months, secured by a first or second mortgage or caveat over Australian residential or commercial property, and the principal is repaid at the end of the term from your exit.
How an interest-only business loan works
- You borrow an agreed amount for an agreed term between one and twelve months.
- Each month you pay the interest only. The loan balance doesn't go down, but it doesn't go up either.
- At the end of the term you repay the principal in one amount from your exit: a refinance, a sale, receivables, business cash flow or another agreed source.
- The security is released once the loan is repaid.
If you would rather have no payments at all for a period, you can choose to have interest for up to the first six months prepaid or added to the loan instead. Our no repayments business loans page explains how that works.
Interest only compared with other repayment types
| Repayment type | What you pay during the term | Effect on cash flow | Typical lender |
|---|---|---|---|
| Daily or weekly debits | Principal and interest, every business day or week | Heavy and constant | Cash flow lenders |
| Principal and interest monthly | Part principal, part interest | Moderate, ongoing | Banks |
| Interest only monthly | Interest only | Light | Equity Tap |
| Prepaid or added interest | Nothing scheduled for up to six months | None during that period | Equity Tap |
Good uses for an interest-only business loan
- Bridging to a sale. You have a property, business or equipment to sell and need the money before the sale completes. See business bridging loans.
- Funding a contract. You have won work and need to pay for materials and labour before the client pays.
- Buying stock. A supplier deal or seasonal buy that will sell through within the term.
- Clearing tax debt. Paying the ATO in full now and repaying through a later refinance or cash flow.
- Waiting on a refinance. Your bank refinance is under way but won't settle in time.
- Working capital to steady the business through a slow patch. See secured working capital loans.
The exit is what makes it work
An interest-only loan doesn't reduce the balance, so the exit has to be real. On the first call we will ask how and when you expect to repay, and what evidence supports it. A signed contract of sale, a refinance application with a lender, a schedule of receivables or a business sale agreement are all good examples. If the exit is less certain, we will talk through a longer term or a backup plan rather than set you up to fail. Our exit strategy guide explains more.
What you don't need
For a property-secured loan you don't need tax returns, BAS, profit and loss, an accountant's letter or bank statements. We don't order a valuation before approval. There is no credit check at initial assessment, and bad credit history, defaults or ATO debt are not automatically a problem. A credit check may be made before funding.
What you do need
- ID for each borrower and guarantor.
- The address of the security property and existing mortgage details.
- What the money is for.
- Evidence of the exit.
Interest only on a second mortgage
Most interest-only loans we write sit behind an existing home loan or commercial loan as a second mortgage. Your first mortgage keeps running on its own terms, and our loan adds one modest monthly interest payment until your exit arrives. The first lender's consent may be needed. If you are weighing this against a full refinance, our second mortgage vs refinancing page sets out the differences in time, paperwork and approval risk.
Timing
Conditional approval can often be given on the phone and a term sheet issued in about 30 minutes once we understand the scenario. Eligible loans can settle in as little as 24 hours. We never guarantee approval or timing, but we move as fast as the paperwork and the property allow.
Pricing
Each loan is priced on the client's individual circumstances, aiming for the sharpest rate available for that situation. The monthly interest amount, the total cost and the payout figure are all shown before you proceed.
Talk to a lender
If you want the money working in your business rather than going back out in principal repayments, an interest-only loan is worth a conversation. Apply online or call 1300 123 024. Brokers can send scenarios through our broker page.
Business-purpose lending only. Approval, timing and terms depend on the scenario.
Frequently asked questions
What is an interest-only business loan?
Why would I choose interest only over principal and interest?
Can I have no payments at all instead?
How do I repay the principal?
Is an interest-only loan available with bad credit?
How quickly can an interest-only business loan settle?
Brokers: send the scenario through the Equity Tap broker channel and you will deal with the same lending team.