Bullet loans, also referred to as balloon payment loans, come with lower monthly payments, a higher interest rate, and a required lump sum payment at the end of the loan’s term. Sometimes, the monthly payment is interest only and does not apply towards the principal, resulting in the entire principal of the loan plus interest being due at the end of the loan term.
Bullet loans are most frequently utilized when a business expects to receive a large inflow of cash at some point in the near future, but they need cash today to continue operations. So they take out a bullet loan with a term that best fits their needs, and they pay it back when they receive said inflow.
While bullet loans can be useful for some circumstances, a more founder-friendly alternative is revenue based financing, which enables a company to convert their future revenues into upfront capital.
When evaluating an opportunity, investors most frequently review its business fundamentals which can include its cash on hand, churn, burn rate, growth rate, and more. A business’s fundamentals vary based on its model, but they are always quantifiable and are almost always used to determine how it is performing.
Business fundamentals are also used by a company’s internal management team to evaluate the performance of each of the functional areas. E.g. marketing and sales can be evaluated based on their number of opportunities, closed-won deals, and cost-per-opportunity; customer experience can be evaluated based on the number of closed tickets and average net promoter score.
Business loans refer to any type of monetary exchange where capital is borrowed, with the expectation that it be paid back (often with interest) at an agreed upon point in time. There are many forms of business loans, including bullet loans, 7(a) Loans, 504 Loans, SBA Loans, Forgivable Loans, Term Loans, MicroLoans, and more.
Unlike business loans, revenue based financing (RBF) does not come with an interest rate, instead it typically comes with a discount rate. Company’s leverage RBF to convert their future revenues into upfront capital.
During a buyout, the majority share of a company’s ownership is acquired. By doing so, the acquiring company “buys out” the equity holders of the target company. A buyout is sometimes also known as a hostile takeover, if the buyout is against the wishes of the company’s management team.