A balloon note is a promissory note that requires little or no payments until the final payment, which is a large lump sum. People seem to like them because they are also accompanied by low interest rates.
In a regular loan, you pay fixed rate payments across the life of the loan in equal amounts. Balloon notes mean you pay very little for most of the period of the loan.
You might find such a loan useful for a startup when you need some fast cash or when you’re looking to get a first office. A balloon note helps you get what you need when you need it, or while you wait for that angel investor to come through with his/her payment for your business.
Of course, as you can probably guess, balloon notes come with a level of risk as well. When it comes time to pay the note and you still don’t have the funds, bad things can happen. Now we don’t mean mafia coming to your door in the middle of the night bad or anything like that, but more in the vein of skyrocketing interest rates on the remaining amount due (which let’s be honest, might be worse than the mafia these days.
You should probably not be considering a balloon note unless you have a pretty stable income and a fairly predictable model for short term success. If your business is totally up in the air and you have no idea, it might not be for you.
A balloon note is awesome until it’s time to actually pay it.