Glossary
Interest capitalisation
Interest added to the loan balance instead of being paid in cash, so the debt grows while nothing is due.
In plain English
Where interest is capitalised, it is not paid each month. It is added to what you owe, and future interest is charged on the larger balance. It is common on construction and development facilities, where there is no income until the project finishes, and it sometimes appears on establishment fees rolled into a facility at drawdown.
The mechanism is not a concession. It defers cash cost and increases total cost, and because the balance compounds, a long capitalisation period on a project that runs late can consume a meaningful share of the headroom the deal was approved on.
Why a lender cares
A capitalising facility is sized against the end position, not the drawn balance, so the limit has to accommodate every dollar of interest that will accrue before the first repayment. Where a project overruns, the capitalised interest is usually what breaches the limit first, ahead of the construction cost itself.
Where this term takes you
Reading up because a deal or a facility is on the table? One call with Nick gets you a straight read on your numbers, free.
Book a call