TL;DR: Interest is the cost of borrowing money, charged by a lender typically as a percentage of the outstanding principal. It is the price a borrower pays for the use of capital over time, and it can be fixed or floating, paid in cash or capitalised onto the balance.
Interest is what a borrower pays a lender for the use of money. It is expressed as an annual percentage rate applied to the outstanding principal. On a loan, interest is the lender's primary return and the borrower's primary cost of capital, separate from any fees or equity upside.
How interest behaves depends on the loan's terms. A fixed rate stays constant for the life of the facility, giving predictable payments. A floating rate moves with a reference rate, so payments rise and fall with the market. Interest can be paid in cash each period, or, in some structures, partly capitalised onto the principal as payment-in-kind.
In a venture debt facility, interest is usually serviced monthly on the drawn balance. Flow Capital's interest is paid monthly at a fixed or floating rate and may include a PIK component, with the structure designed to keep the periodic cash cost manageable while the principal stays available for growth. The headline interest rate is only part of a facility's cost; fees and any warrant coverage also matter, which is why the right comparison is the total cost of capital.
What is the difference between fixed and floating interest? A fixed rate is constant for the term. A floating rate moves with a reference rate, so payments can change over time.
Is the interest rate the full cost of a loan? No. The full cost also includes any setup, commitment, or exit fees, plus warrant coverage. Compare facilities on total cost, not interest rate alone.
Related terms: Interest-only period · Amortisation · PIK Interest
