An interest-only start means the first few payments on a term loan cover interest alone, and the balance is repaid over the months that remain. In an invented case for a Collierville, TN veterinary clinic, three interest-only months lower the first payments by $439.16 each but add $341.22 to the total paid. Baydale talks the structure through; funding partners decide whether to offer it.
An invented $33,650 surgery equipment order at a 9.6% annual rate, financed two ways: 60 level payments, or three interest-only months followed by 57 payments. In this invented example the interest-only version starts lighter, ends heavier and costs more in total.
What an interest-only start on a term loan means
On an ordinary term loan, each payment covers the interest due plus a slice of the balance, so the balance falls from the first month. With an interest-only start, the first payments cover only the interest. The balance stays where it began until regular payments begin, and those payments run a little higher because the same balance is repaid over fewer months.
Some funding partners may offer a short interest-only period on a term loan or an equipment loan, and others may not. Whether one is available, and for how long, is set in the offer.
The business term loan page covers the ordinary fixed schedule, and the business loans overview shows how long each of the six funding types runs.
Surgery equipment for a Collierville, TN veterinary clinic, financed two ways
Invented case: a Collierville, TN veterinary clinic outfits a surgery room with a cart-mounted anesthesia machine at $14,800 that runs from its own gas cylinders, a surgical table at $4,350, a patient monitor at $6,900 and a stainless cage bank for recovery at $7,600, an invented $33,650. No piped gas or wiring is part of the order; that would be property work outside this site.
| Schedule | Months 1 to 3 | Months 4 to 60 | Total paid | Interest |
|---|---|---|---|---|
| Level payments | $708.36 a month | $708.36 a month | $42,501.60 | $8,851.60 |
| Three interest-only months first | $269.20 a month | $737.46 a month | $42,842.82 | $9,192.82 |
In this invented example the interest-only months save $439.16 on each of the first three payments, $1,317.48 in all, and every regular payment after them is $29.10 higher than the level payment. Over the full 60 months the invented interest-only schedule costs $341.22 more, because the balance stays at the full $33,650 for three months instead of starting to fall.
Why a clinic might ask for lighter payments while new equipment gets set up
The reason is timing. New surgery equipment may take weeks to set up and for staff to train on, and a clinic may want the fuller payments to begin once the room is booking procedures. An interest-only start trades a lower early payment for a higher total; it does not make the equipment cheaper.
It is not the only way to handle the first months on new equipment. A clinic could set cash aside for the first three payments, or draw on a credit line for them, and compare either with the invented $341.22 that the interest-only start adds in the table above.
County Business Patterns counted 75 veterinary services establishments in Shelby County, TN in 2023. Ten veterinary services establishments with paid staff had a ZIP 38017 address that year, per ZIP Code Business Patterns.
Questions to put to a funding partner about an interest-only period
If an offer includes interest-only months, these questions pin down what they cost:
- How many months can be interest-only, and is interest charged at the same rate during them?
- What will the regular payment be once the interest-only months end?
- Does the offer show the total of all payments, with and without the interest-only months?
- Can the clinic pay extra principal during the interest-only months, and is there a fee for it?
- Does the interest-only start change any fee or the length of the term?
With those answers in writing, a clinic can compare the two schedules the way the table above does. A term loan or working capital loan request starts with the request form or a call to Baydale, and more articles are on the blog.
By Baydale Funding Group · Updated
