What Does “Interest-Only” Mean?
Normally, when you repay a loan, your monthly payment covers both the principal (the borrowed amount) and the interest (the cost of borrowing).
With an interest-only payment plan, you temporarily pay just the interest. This can significantly reduce your monthly obligation.
👉 For example, if your usual loan payment is GHS 1,000 — with GHS 800 going toward principal and GHS 200 toward interest — an interest-only plan may reduce your payment to just GHS 200.
This gives you some much-needed breathing space, but it’s important to note that your loan balance doesn’t shrink during this period. In fact, you’ll likely pay more in total interest over the life of the loan.
Once the interest-only period ends, your payments return to the normal amount.
When Does It Make Sense to Ask for Interest-Only Payments?
Here are two common situations where this option might benefit your business:
1. Struggling to Keep Up with Payments
If you’re at risk of missing payments, negotiating interest-only terms can help you avoid defaulting. This can be particularly useful if you’ve already paid down a good portion of your loan — meaning your interest share is smaller.
2. Waiting for New Revenue to Kick In
Sometimes, you need to spend money before you make money. Renovating a shop, launching a product, or expanding into a new location may cause a temporary cash flow gap. In such cases, an interest-only plan can keep costs lower while you work toward generating revenue.
Pros and Cons of Interest-Only Business Loan Payments
Like any financial decision, this option has advantages and drawbacks.
✅ Pros
- Reduces your monthly payments temporarily
- Helps prevent missed payments or loan default
- Preserves a good relationship with your lender
❌ Cons
- You’ll pay more in interest long-term
- Loan payoff date may be delayed
- Lender might require extra collateral or higher interest rates
- Not all lenders allow this option
How to Request Interest-Only Payments
Not every lender offers this flexibility, but many will if you make a strong case. Here’s how to prepare:
- Assess your financial situation. Determine how much relief you need and whether interest-only payments will be enough.
- Contact your lender early. Don’t wait until you miss a payment. Being proactive shows commitment.
- Make your case clearly. Explain your temporary hardship and share financial statements or cash flow forecasts if needed.
- Read the terms carefully. Ensure you understand all conditions, such as additional fees, collateral, or higher rates.
Other Options to Consider
If your lender doesn’t offer interest-only payments, here are some alternatives:
- Request a payment pause – Some lenders allow temporary deferrals, though interest still accrues.
- Use a business line of credit – Can cover short-term gaps and sometimes allows interest-only draws.
- Negotiate loan modification – Ask to extend the repayment term or lower the interest rate.
- Refinance your loan – Replace your current loan with one offering lower rates or longer terms.
Final Thoughts
Interest-only business loan payments can provide short-term relief and help you navigate rough financial patches. However, it’s not a long-term solution — and you’ll likely pay more interest in the end.
If you’re facing repayment challenges, weigh the pros and cons carefully and consider alternative strategies like refinancing or modifying your loan terms. The key is to act early and communicate openly with your lender.
Source: nerdwallet
