One of my start-up investments has an outstanding loan to
me, with an open-ended payback period. For each payment that I receive, what
portion should be considered as interest, and what portion as principal?
There will be a document, trying to finalize details like this first.
Board Member, Corporate Finance Advisor and Strategy Consultant
September 21st, 2016
Is there a loan document? Offhand, it's generally interest first, then principal. (I don't think I've ever seen a loan document that provided for principal to be paid before accrued interest had been paid in full.)
It depends on what you mean by open-ended. It sounds like all interest, but it depends on whether there are any fixed repayment obligations. You may have some choices.
CEO at Strat/Assist, Conditioning Companies for Capital & Growth
September 28th, 2016
That would depend on the loan document and the reason you want to know what portion is interest and what is principal. Unless there is a specific term in the loan document that says payments will be applied first to principal and then to interest or according the the attached amortization schedule, you can safely assume, in the most conservative case that interest is being paid first. Apply the entire payment to accrued interest (and in the cases of cumulative accrued interest, to interest on the unpaid interest) and any excess amount is applied to principal.