TL;DR: Amortisation is the gradual repayment of a loan's principal over its term through regular instalments, alongside interest. Whether a facility amortises or not is one of the most important structural questions in venture debt, because it decides how much cash a growing company can keep deployed in the business during the term.
In venture lending, amortisation means paying down a loan's principal in scheduled instalments, so the balance falls steadily to zero by maturity. Each monthly payment covers interest plus a slice of principal: early payments are interest-heavy, later ones principal-heavy, and by the final payment nothing is left owing.
An amortising loan pulls principal out of the business every month from day one. For a company investing hard in growth, that is cash diverted from sales, hiring, and product into paying down debt early, which shortens runway precisely when the company is trying to extend it.
The alternative to amortisation is an interest-only structure, where the borrower services only interest during the term and repays principal later, often as a single lump sum at maturity (a bullet repayment). The trade-off is impact on cash flow. An amortising loan demands higher monthly payments from day one but leaves nothing due at the end. An interest-only loan keeps monthly payments low and concentrates repayment at maturity.
For a $3M facility at 12% interest over 36 months, an amortising structure carries payments of roughly $100,000 per month, while an interest-only structure runs closer to $30,000 per month plus the $3M principal at maturity. The difference is capital a growing company can deploy toward sales and growth rather than principal repayment.
Flow Capital provides interest-only facilities with bullet repayment at maturity, meaning there is no amortisation during the term. The full principal stays on the balance sheet and is repaid at the end, typically through refinancing, a new equity round, an exit, or accumulated cash flow. This preserves monthly cash flow for growth.
Why would a growth company prefer an interest-only loan to an amortising one? Because amortisation diverts cash into early principal repayment, reducing the cash available for growth, or shortening runway. An interest-only structure keeps that cash in the business to fund growth, deferring repayment of principal to maturity.
Is an amortising loan cheaper than interest-only? Not necessarily. Amortising reduces the balance faster, which can lower total interest paid, but it also pulls cash out of the business sooner. The right structure for a company depends on how the company plans to use and repay the capital.
Do all venture debt loans amortise? No. Some may include a partial interest-only period followed by amortisation, while some, including Flow Capital, offer full-term interest-only with a bullet at maturity. The amortisation profile is one of the key terms to compare across offers.
Related terms: Bullet Loan · Interest-Only Period · Venture Debt · Cash Runway
