Path-Q Solar
How should a loan with a deferred payment period be evaluated for hidden financial risk?
Answer
Look beyond the initial payment holiday and determine whether interest accrues, is capitalized, or creates a balloon payment. Model the balance and payment after deferral, including what happens if the project is delayed or sold during that period.
Key points
- A deferred payment is not necessarily deferred interest.
- Check whether the balance grows during the deferral period.
- Identify the first required payment, revised payment amount, and final maturity obligation.
- Compare the deferred structure with a standard loan using total repayment and worst-case cash flow.
What it depends on
- Interest accrual and capitalization terms
- Deferral length
- Post-deferral payment schedule
- Fees, balloon amount, and prepayment rules
Risks and trade-offs
- The loan may cost more even though early payments are lower.
- A large later payment can create refinancing or sale risk.
- The payment holiday may hide affordability problems rather than solve them.
Information you may need
- Promissory note and amortization schedule
- Balance at the end of deferral
- Post-deferral payment and maturity terms
- Consequences of project delay or early sale
Your next step
What to do next
Obtain the full amortization schedule and calculate the balance and required payment immediately before and after the deferral period.
Path-Q
Find the right next step
Answer a few questions and we’ll narrow your options.
Loading…
SQ01910