TL;DR: A bullet loan defers 100% of principal to the maturity date. The borrower repays the entire principal of a loan in a single payment at the end of the loan term, rather than in monthly instalments over the life of the loan. It is a common structure in venture debt and gives borrowers full use of the capital throughout the term.
A bullet loan splits the term into two phases. During the loan term, the borrower pays nothing or services interest only on the drawn balance. The principal stays untouched. At maturity, the full principal is repaid in one lump-sum payment.
This is different from an amortising loan, where the borrower repays principal gradually each month alongside interest, resulting in higher monthly payments from day one but no large balance due at the end.
For a $3M loan at 12% annual interest over 36-months:
The difference matters for cash flow a $70,000 less cash per month is going out the door in an interest only loan. A company drawing $3M in growth capital and deploying it toward sales and marketing can service a $30K monthly payment far more comfortably than a $100K payment. Borrowers commonly cover the bullet payment through refinancing, a new equity round, an exit event, or accumulated cash flow by maturity.
Since bullet structures shift repayment risk to the end of the term, lenders price that risk into higher interest rates or larger warrant coverage, and most will require amortization to start at some point during the term of the loan. However, there are some Lenders, including Flow Capital, that are willing to provide loan facilities with interest-only payments during the full term of the loan, with a bullet principal repayment at maturity.
What happens if the company can't make the bullet payment at maturity? The company and lender commonly negotiate to restructure the loan before the maturity date. Options include extending the term, refinancing with a new facility, converting the loan to an amortizing loan (if the borrower has the cash flow), or repaying from an equity raise or exit proceeds. Most lenders prefer resolution over default.
Is bullet repayment riskier for the borrower? No, and in fact it can be much better for the company in many ways. Yes, the repayment risk is concentrated at maturity rather than spread monthly, but, borrowers have a long time to plan for that repayment, and they can use more of the loan proceeds to execute on their growth plan. Founders should plan for the bullet payment from the outset and not treat the maturity date as a distant problem.
Is a bullet loan the same as an interest-only venture debt loan? Yes, if the loan is interest-only for the full term. A loan that pays only interest from drawdown to maturity has 100% of principal due at the end, which is the definition of a bullet. The confusion arises because "interest-only" in venture debt usually refers to a partial interest-only period (6 to 18 months) inside a loan that then amortises, that structure is not a bullet.
Related terms: Minimally Dilutive Capital · Term Sheet
