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BALLOON PAYMENT

 

Good morning treps! There are different types of funding needs for every situation. Some companies use Balloon payment terms because they may not WANT to use their own CASH to pay down on a loan. Often times if the borrower has cash flow problems initially and then once the deal close (they obtain funding) cash flow increase thus the ability to pay back the loan.

RISK: ensuring you have enough cash to pay for the balloon payment, which is typically two to three times the average payment

MOST — USED BY: Those who purchase fixed assets, especially mortgages

WHAT IFs? – if you realize that the balloon payment will be unaffordable, you can sell the fixed asset or attempt to refinance the loan before the end of the term

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