Understanding Interest Rate Structures & Maximising SME’s Borrowing Capacity

October 2025

Understanding Interest Structures & LVR: How to Maximise Your Borrowing Power

Securing finance isn’t just about finding a lender — it’s about structuring the right type of facility to maximise your borrowing capacity, cash flow, and project outcomes. Interest type, repayment structure, and Loan-to-Value Ratio (LVR) all play a critical role in how much you can borrow and on what terms.

At SME Money, we don’t just shop the market — we structure solutions. With access to banks, fintech lenders, and a network of private funders, we tailor finance for everything from development projects and business expansion to bridging facilities and short-term cash flow support.

Interest Structures Explained: What They Mean for You

Choosing the right interest structure isn’t one-size-fits-all. Each option affects your monthly repayments, serviceability, and borrowing capacity differently. Here’s how they compare:

Interest Type	How It Works	Best For
Pre-Paid Interest	You pay the interest upfront for the term of the loan. This can improve borrowing capacity by lowering ongoing commitments and avoiding monthly servicing requirements.	Short-term bridging, development finance, or when strong initial cash flow is available.
Capitalised Interest	Interest is added to the loan balance rather than paid monthly. Repayment happens at refinance, sale, or project completion.	Development projects or start-ups without immediate revenue streams.
Interest-Only	You pay only the interest for a set term, reducing monthly commitments and freeing up cash flow.	Cash flow-sensitive businesses, investors, and growth-stage projects.
Fixed vs Variable	Fixed rates offer certainty and stable repayments. Variable rates can fluctuate but often offer more flexibility and potential cost savings.	Longer-term facilities or strategic cash flow management.

LVR (Loan-to-Value Ratio): A Key to Unlocking Higher Borrowing

LVR is the ratio between the loan amount and the value of the secured asset. It’s one of the most important factors lenders consider — and it can determine both how much you can borrow and what terms you receive.

LVR Range	What It Means	Outcome
≤ 60%	Low risk for lenders, highly favourable terms.	Lower rates, faster approvals, and more lender options.
60% – 75%	Moderate risk, most commercial and residential lending falls here.	Standard terms and broad lender appetite.
75% – 90%+	Higher risk. Traditional banks may pull back, but private funders can often step in.	Alternative or structured solutions required — often higher leverage possible.

💡 Example: On a property valued at $1,000,000, borrowing $700,000 gives you a 70% LVR. Adjusting the loan structure — like opting for capitalised or pre-paid interest — can improve your serviceability and unlock higher funding potential.

Why Work With SME Money

We go beyond standard lending. With access to a network of private funders, we can often structure deals that mainstream lenders can’t — from high-LVR solutions and non-standard securities to bespoke interest structures that boost borrowing capacity.

Benefit	What It Means for You
✅ Higher Borrowing Power	Strategic use of interest structures and LVR positioning to maximise how much you can borrow.
✅ Access to Private Funders	Funding for projects that don’t meet traditional bank criteria.
✅ Flexible Loan Structures	Solutions tailored to your cash flow, project timeline, and growth goals.
✅ Expert Support	We negotiate terms, structure deals, and guide you from application to settlement.

Whether you’re planning a property development, expanding your business, or bridging finance gaps, SME Money can help you secure the structure and funding you need — even when the banks say no.

Maximise Your Borrowing Power with the Right Structure

From pre-paid and capitalised interest to high-LVR private funding, we build finance solutions designed around your project — not the other way around.

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Disclaimer: This article provides general information only and does not constitute financial advice. Please consult your accountant or financial advisor before making finance decisions.