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How a bullet structure works
In a bullet loan, the borrower pays only interest (and any fee obligations) during the term of the facility. The entire principal balance falls due on the maturity date as a single payment — the bullet. This contrasts with an amortising loan, where principal is repaid in scheduled instalments, reducing the outstanding balance over time.
Some facilities are partially amortising — the borrower reduces principal by a modest scheduled amount each quarter, with a larger residual balance (a balloon) due at maturity. The term 'bullet' is sometimes used loosely to include these balloon structures.
Why borrowers choose bullet repayment
A bullet structure maximises cash available to the business during the loan term because no capital is being repaid periodically. This suits businesses that generate significant cash at the end of a defined period — for example, property developers who sell or refinance an asset at completion — or holding companies that rely on dividend upstreaming from subsidiaries at a future date.
It is also common in acquisition finance where the borrower expects to refinance the facility on improved terms once the acquired business has been integrated and its earnings have been demonstrated to a new lender.
Refinancing risk and lender expectations
The principal risk in a bullet structure for the borrower is refinancing risk: the need to source a new facility to repay the bullet when it falls due. If credit markets tighten, if the business has underperformed, or if interest rates have risen materially, refinancing may be on worse terms — or not available at all. Lenders mitigate this by requiring the borrower to demonstrate a credible refinancing plan as maturity approaches, sometimes twelve or eighteen months ahead of the bullet date.
- Build a refinancing timeline into your financial plan from day one
- Monitor headroom against any financial covenants — a breach can accelerate a bullet loan
- Some facilities include extension options at the lender's discretion — negotiate these upfront
Frequently asked questions
Can a bullet loan be repaid early without penalty?
This depends on the facility agreement. Many term loans — particularly fixed-rate or capital-markets structures — include make-whole provisions or prepayment fees that compensate the lender for lost interest. Variable-rate bank loans may allow early repayment on a break-date with less or no penalty. Check the specific prepayment provisions before committing.
Is a revolving credit facility the same as a bullet loan?
Not quite. A revolving facility has a bullet maturity — the commitment typically terminates and all drawings repay on a single date — but during the term the borrower can draw, repay and redraw freely. A term loan bullet is a fixed drawn balance repaid at maturity with no capacity to redraw.
Funding for UK limited companies
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