The payment schedule determines the cash cost of debt.
A quoted interest rate does not describe when principal must be repaid or how fees reduce the cash a borrower receives. This model follows a single draw through interest-only payments, amortization and any balloon remaining at maturity.
The amortization count sets the level payment after interest-only; maturity sets when the entire balance must be cleared. Setting amortization to zero produces a bullet repayment. The effective annual cash borrowing rate discounts every scheduled cash payment back to the net proceeds after the upfront fee.
The formula, made clear.
- Periodic rate
- Nominal annual percentage divided by 100 and by payments per year.
- Maturity balloon
- Principal left after the scheduled amortizing payment on the final date; paid in addition to that payment.
- Cash financing cost
- All cash interest and both fees, excluding repayment of the borrowed principal.
Put the numbers in context.
$1,200.00 at 0% with 12 monthly amortizing payments requires $100.00 per month. A $60.00 upfront fee leaves $1,140.00 received, so the effective borrowing cost is positive even with a zero coupon.
| Input | Example value |
|---|---|
| Loan principal | $1,000,000.00 |
| Nominal annual interest rate | 12% |
| Payments per year | Monthly |
| Payments until maturity | 36 periods |
| Initial interest-only period | 12 periods |
| Amortization payment count | 24 payments |
| Upfront cash fee | $10,000.00 |
| Maturity cash fee | $20,000.00 |
| First scheduled debt payment | $10,000.00 |
What this calculation assumes
One initial draw, fixed nominal rate, equal end-of-period cash payments, no prepayment, default, day-count accrual, floating rates, compounding of unpaid interest or tax effects. The effective rate is a modeled annual cash-flow yield, not a regulated APR disclosure or an accounting effective-interest determination. Fees are specified cash amounts. Zero principal with zero fees has no defined borrowing rate.
What to consider next.
Inspect the maturity payment and compare debt service with cash generation. A venture-debt liquidity scenario adds an explicit operating-burn comparison and warrant coverage.
How we approach financial models →