A commercial bullet loan repays the whole principal at maturity. How it differs from balloon and interest-only loans, and how you exit one.
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Commercial Bullet Loan · Maturity · Exit
A commercial bullet loan repays the whole principal at maturity, so the exit is part of the product from day one. This guide sets out how it differs from balloon and interest-only loans, and how lenders test the way out.
Quick Answer
A commercial bullet loan is a loan where no principal is repaid during the term and the full balance falls due in one payment at maturity. Interest is paid in the meantime, so the exit at the end is part of the product from day one. Test the exit before you sign, using a commercial property loan structure and a clear plan for the day the balance is due.
Also called: bullet repayment loan, interest-only to maturity loan. A bullet loan and an interest-only loan with no conversion to principal are the same structure.
What is a commercial bullet loan?
A commercial bullet loan is a secured loan where the principal is not repaid during the term. The borrower pays interest as it falls due, or on the schedule the facility sets, and the whole balance falls due in one payment at the end. The word bullet describes that single final payment, and it is the feature that shapes every other decision on the loan.
Three features define the structure. The principal is due at maturity and does not amortise. There is no reversion to principal and interest later in the life of the loan. And the borrower needs a credible exit before settlement, because the balance cannot be cleared out of the repayments themselves. The security is the property, and the bullet is the repayment pattern. For how the security, deposit and settlement work on any commercial property loan, read how commercial property loans work.
If you are weighing the bullet against a loan that sets a term and an amortisation period, the dates are different things and are easy to confuse. The commercial property loan term post separates them, and this post stays with the bullet structure and the exit.
Is a bullet loan the same as a balloon loan?
A bullet loan and a balloon loan are not the same, although both leave a large amount due at the end. A balloon loan repays part of the principal during the term, on a schedule, and the balloon is the balance that remains at maturity. A bullet loan repays none of the principal during the term, so the final payment is the whole loan.
The practical difference is the size of the exit problem. A balloon is smaller at maturity, because some of the debt has already come off. A bullet carries the full principal to the end. From the underwriter's seat, the question at maturity is not how much is left but whether the borrower can clear the whole principal, by sale, refinance or cash, on the day it falls due.
For the definitions, the balloon payment entry sets out the mechanics, and residual value explains how the end figure is worked out. How balloons and residuals are handled on asset finance is covered in balloons and residuals on asset finance, which is a different security from property.
How is a bullet loan different from an interest-only loan?
The two are close, and the label you hear depends on who is describing the deal. An interest-only loan pays interest and no principal for a period. A bullet loan is an interest-only loan that never converts to principal and interest, so the principal stays outstanding until maturity. That is why the synonym interest-only to maturity loan appears in lender conversations.
The difference shows at the end. Some interest-only facilities revert to principal and interest after the interest-only period, which changes the repayment. A bullet loan does not revert. The full principal comes due in one go. How long an interest-only period runs and what reversion means for repayments is covered in interest-only commercial property loans, so this post does not repeat it.
The table below sets the four repayment patterns side by side. It describes how each is structured, not what any lender will offer.
| Feature | Bullet loan | Balloon loan | Interest-only loan | Principal and interest loan |
|---|---|---|---|---|
| Principal repaid during the term | None | Part, on a schedule | None, during the interest-only period | All of it, across the term |
| Interest during the term | Usually serviced as it falls due, or capitalised or prepaid, depending on the facility | Paid | Paid | Paid within each repayment |
| What is due at maturity | The whole principal | The balance left after scheduled principal | The principal in full, unless the facility converts | Any balance left after the final scheduled repayment |
| Exit needed at maturity | Always | Usually, when the balloon is material | Usually, unless the facility converts | Usually not, when the schedule clears the balance |
Who offers commercial bullet loans in Australia?
No public list shows which lenders write bullet structures, and this post will not invent one. Lender type is the more useful frame. Major banks, non-bank lenders and private lenders each set their own appetite for a bullet repayment, and that appetite moves with credit policy, the security and the borrower's exit. Whether a particular lender will write one is a question to check against its current policy rather than assume from its category.
The deciding question is whether the lender will accept your exit as the repayment at maturity. That is decided file by file. For how policy differs across the non-bank market, read the non-bank lender policy matrix, and see non-bank lender for what that category covers. Borrowers who need a shorter, asset-backed route at a higher cost sometimes look at private lending, which is a separate product with its own tests.
How is interest paid on a bullet loan?
During the term, interest is the cost of holding the balance. It is usually serviced as it falls due, so the borrower pays the interest each month and the principal stays flat. Some facilities allow interest to be capitalised, which adds it to the balance, or prepaid. The facility letter sets which applies. The rate itself varies by lender, and the commercial property loan rates post explains how rates are structured without treating any figure as a quote.
Prepaid interest raises a tax question, and the ATO's rules on prepaid expenditure are the starting point. In broad terms, a small business entity can usually deduct a prepayment straight away under the 12-month rule when the service period is 12 months or less and ends by the last day of the following income year. Otherwise the deduction is spread over the service period, or over 10 years if that is shorter. Source: ATO, Deductions for prepaid expenses 2026, read 3 November 2026. Whether the small business test applies to your business, and how it applies to your interest, is a question for your accountant.
Capitalised interest is a separate question, and this post does not answer it. Do not assume the prepaid answer carries across to interest that is added to the balance.
How do lenders test the exit on a bullet loan?
The exit is the test. A bullet loan rests on the borrower being able to pay the full principal at maturity, so the lender will ask how that happens before settlement. From the underwriter's seat, the exit is evidence you can show, not a plan you describe. The three routes are a sale of the security, a refinance into a new facility, or repayment from cash or other assets. Each has a different evidence trail, and the three are often combined. The exit strategy entry sets out the general idea.
The points below are what a file usually needs to show.
- A named route. Sale, refinance or repayment from cash. A single route with a timeframe reads more clearly than three open-ended ones.
- Evidence for that route. For a sale, a realistic view of value and the market to support it. For a refinance, a view of the lenders who might take the loan at maturity, which is not guaranteed. For cash, a documented source.
- Serviceability while you wait. The interest has to be covered until the exit happens, which is where serviceability comes in.
- A fallback. What happens if the exit is late or the value falls short. A credible fallback is easier to assess than none.
Refinance risk is the one most borrowers underrate. A refinance at maturity depends on the lenders available at that time, on the security's value then and on the borrower's position then. None of those is fixed today, and terms vary by lender. For the steps and costs of a refinance, read how to refinance a commercial property loan. The lender's view of the security is covered in loan-to-value ratio, which is the number a future lender will read.
An exit that holds
- One named route with a date attached
- Evidence for the route, filed before settlement
- Serviceability that covers the interest until the exit
- A fallback that works if the exit slips
An exit that stalls
- A plan that depends on values rising
- A refinance assumed to be available with no test of it
- No route for repayment if the sale or refinance fails
- Interest that the cashflow cannot carry until maturity
What happens if you cannot repay a bullet loan at maturity?
The usual answer is to start well before the date, not on it. The options that remain shrink as maturity gets close, and a broker and the lender can only work with the time that is left. Start the conversation while the exit still has room to move.
What the facility letter says about expiry, notice and what the lender can do at the end is covered in commercial interest-only expiry and refinance. If a covenant breach sits alongside the maturity, the separate guide on covenant breach at interest-only expiry applies. Those guides are for the lender conversation. What the loan documents require is a question for your solicitor.
A commercial bullet loan repays the whole principal at maturity, so the exit is part of the product from the first day. Interest is the cost during the term. The real test is whether the borrower can clear the balance when it falls due, through a sale, a refinance or cash, and whether a lender will accept that route on the file in front of them. It is a structure to plan for before signing, not a problem to solve later.
Key takeaway: Before you sign a bullet loan, write down the exit route, the date it happens and the fallback if it slips.Frequently Asked Questions
A bullet loan is a loan where no principal is repaid during the term and the full balance is due in one payment at maturity. The borrower pays interest in the meantime, and the bullet is that final payment of the whole amount. The structure sits within commercial property loans, and the sections above explain how it differs from balloon and interest-only loans.
A bullet loan and a term loan differ in how the principal is repaid during the term. A term loan repays principal and interest on a schedule, so the balance falls over time, while a bullet loan repays none of the principal until maturity. The repayment mechanics of a standard facility are covered in how commercial property loans work.
No official list shows which lenders offer commercial bullet loans, so the question has to be answered file by file. Availability depends on the lender's current policy, the security and the exit route. The non-bank lender policy matrix shows how lender policy varies, and a broker can check current appetite for your file.
Commercial bullet loan rates depend on the lender, the security, the borrower's credit profile and market conditions at the time of application, so no single figure applies to every file. The commercial property loan rates post explains how rates are structured. Ask a broker for an indicative view on your own file rather than relying on a published range.
Prepaying interest on a bullet loan may be possible depending on the facility, and whether a tax deduction is available is a separate question. The ATO's prepaid expenditure rules can allow an immediate deduction for a small business entity where the eligible service period is 12 months or less, but whether that applies to your interest is a question for your accountant. The commercial property loan term post sets out how loan periods are dated.
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