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Deferred payment
Also called payment deferral, deferment, payment holiday, grace period.
An agreed pause or reduction in payments at the start of a facility or during a hardship period, with the deferred amount recovered later.
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What it means
Three common versions. SBA and bank loans sometimes open with a deferment period while a startup ramps or a construction project finishes. Equipment finance offers deferred first payments and seasonal or step structures matched to when the machine will actually earn. Distressed accounts get a deferral inside a forbearance agreement.
What happens to the deferred amount is the whole question. On interest-bearing debt, interest normally continues to accrue during the pause and is capitalized into the balance, so payments after the deferral are higher and total cost rises. On some structures the deferred payments are simply added to the end and the maturity extends.
Read which one you have been given, and whether the deferral is a contractual right or a discretionary accommodation that can be withdrawn.
Where this one catches people
On a fixed-cost advance a deferral works in the opposite direction. The total to remit is already set, so stretching the schedule leaves the price unchanged and lowers the effective annualized cost. That is precisely why funders grant them reluctantly, in short increments, and usually in exchange for something else, such as an extended personal guaranty or a reaffirmation of the balance.
Where you will meet this term
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Deferred payment — common questions
What does deferred payment mean?
An agreed pause or reduction in payments at the start of a facility or during a hardship period, with the deferred amount recovered later.
Where does deferred payment catch people out?
On a fixed-cost advance a deferral works in the opposite direction. The total to remit is already set, so stretching the schedule leaves the price unchanged and lowers the effective annualized cost. That is precisely why funders grant them reluctantly, in short increments, and usually in exchange for something else, such as an extended personal guaranty or a reaffirmation of the balance.
Is deferred payment the same as an interest rate?
Deferred payment is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does deferred payment apply to?
Merchant Cash Advance, Term Loan, SBA Loan, Equipment Financing.
Is there a worked example of deferred payment?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside deferred payment?
Amortization, Capitalized Interest, Forbearance, Interest-only, Loan modification.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.