Why non-amortising loan matters to a first-time founder
Lower payments during the term can preserve cash for growth, but they postpone repayment rather than remove it. The large amount due at maturity creates refinancing and liquidity risk. A founder should model that obligation before treating the cheaper monthly payment as improved affordability.
Examples of non-amortising loan
A company borrows ₹12 million for two years and pays ₹80,000 of interest each month without reducing principal. At month 24, the full ₹12 million is still due. The founder sets aside cash quarterly and prepares a fallback repayment plan rather than assuming another lender will refinance it.
Common misunderstanding
It is not an interest-free loan. Interest may be paid periodically, added to the balance or settled at maturity, depending on the contract. Some loans are only partly amortising and finish with a balloon payment, so inspect the repayment schedule rather than relying on the product name.
When to use it
Use one when future cash receipts are sufficiently predictable and preserving cash now justifies a concentrated later payment. Compare total interest, security, covenants and early-repayment terms with an amortising alternative. Avoid it when repayment depends entirely on uncertain fundraising or an uncommitted refinancing.