Not sure if this is the right forum but figured you guys are probably more likely to have come across this.
Am modelling loan amortization for a company. Project has a 2 year lead time before revenues come in so Company is asking for a 2 year amortization on principal+ interest but their bank insists that they have to start paying interest right away. HOWEVER because bank so caring they'll lend the company enough money to pay the interest. Not sure how to model this though coz a higher loan amount means higher interest payment...right? Wouldn't that just create some weird circularity problem?
Appreciate your help.
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You need to break the loan up - so Loan 1 = original ask. Let's call it $1m at 5% = $50k in interest per year. Now you need an additional funds to pay the $50k/year to pay for the annual interest. To calculate the amount of this loan take the original interest from loan 1 and divide it by (1-interest rate for loan 2).
50k / (1-5%) = 52,632
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