This modelling guide looks at how to model key aspects of a loan – including a choice of debt repayment profiles (level debt service vs level principal). The accompanying spreadsheet includes a presentation sheet that shows the main features of the loan.

1. Financial Modelling
HANDBOOK
financialmodellinghandbook.com
CALCULATOR
LOAN

2. ABOUT THE FINANCIAL
MODELLING HANDBOOK
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error, speeds up development time and lowers cost. The Financial
Modelling Handbook is a collaborative, crowd-sourced guide to
building better financial models using the FAST Standard.
www.financialmodellinghandbook.com/contribute

3. financialmodellinghandbook.com
LIOR
Lior Sternberg is a partner at RN Executives
www.rnexecutivos.com.br. He is also the co-
founder of Priority Partners
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that specialises in the development of
customised strategic solutions for: financial
management, administration, logistics and
system implementation.
Financial Modelling
HANDBOOK

4. This modelling guide looks at how to model key
aspects of a loan – including a choice of debt
repayment profiles (level debt service vs level
principal).
The accompanying spreadsheet includes a
presentation sheet that shows the main
features of the loan.
Financial Modelling
HANDBOOK
DOWNLOAD THIS GUIDE AND THE
ACCOMPANYING EXCEL EXAMPLE
CALCULATOR
LOAN

5. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
LOAN SIMULATOR
The loan simulator is designed for a financial
manager to help them select the right type of loan
for their company. On top of the usual loan
components (interest rate, opening balance and
period), you will find included other components
such as: loan type, grace period and insurance.
The use of a loan simulator prior to making a
borrowing decision can helpful in confirming that
loan obligations do not have an adverse affect on
company cash flows.

6. Debt interest expense is calculated by multiplying the debt beginning balance with a
monthly interest rate.
By using a beginning balance, we assume end of period cash flows (debt drawdowns
and repayments are assumed to have no impact on the balance for interest
calculations as cash flows occur at the end of each month).
Formula in K12: = $F10 * K11
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
DEBT INTEREST
1
1

7. In this model, we consider a grace period during which the borrower is obliged
neither to pay debt interest nor principal.
Debt interest paid is calculated by multiplying debt interest expense (calculated in the
previous slide) with a debt repayment period flag.
Formula in P16: = P14 * P15
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
DEBT INTEREST
2
2

8. The difference between debt interest expense and debt interest paid is debt interest
rolled up.
In this model, we will add rolled up interest to the debt balance.
Formula in K20: = K18 - K19
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
DEBT INTEREST
3
3

9. Debt principal repayment under a fixed (or level) principal repayment schedule is
calculated by dividing the debt beginning balance by the debt term at the first debt
repayment period.
This first debt principal repayment is applied across each debt repayment period.
Formula in P28: = IF(P26 = 1, P25 / $F24, O28 * P27)
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
4
4
DEBT PRINCIPAL REPAYMENT
FIXED PRINCIPAL

10. For fixed (or level) debt service the calculation uses the PMT function. This function
calculates equal monthly instalments (principal + interest) based on a constant
interest rate.
PMT() requires a periodic interest rate, a repayment counter and a debt beginning
balance. Multiplying with -1 is needed to invert the negative sign of the PMT()
function when the debt beginning balance is positive (the function considers out flow).
The debt repayment period counter is modelled on the Time sheet. The counter
identifies the number of remaining debt repayment periods.
Formula in P34: = IF(P33 <> 0, -1 * PMT($F31, P33, P32), 0)
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
5
5
DEBT PRINCIPAL REPAYMENT
FIXED PAYMENT

11. The debt principal repayment under the level debt service option is calculated by
subtracting debt interest paid from debt service - fixed payment.
Formula in P38: = P36 - P37
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
6
6
DEBT PRINCIPAL REPAYMENT
FIXED PAYMENT

12. INDEX() is used to pick out an active single debt principal repayment from those
included in the model.
In this model, the debt payment option switch is either 1 or 2. Select “1” for debt
principal repayment - fixed principal; select “2” for debt principal repayment - fixed
payment.
Formula in P44: = INDEX(P42:P43, $F41)
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
7
7
DEBT PRINCIPAL REPAYMENT
AND DEBT SERVICE

13. Debt service is calculated by adding together debt interest paid and debt principal
repayment.
Formula in P49: = SUM(P47:P48)
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
8
8
DEBT PRINCIPAL REPAYMENT
AND DEBT SERVICE

14. The debt balance increases with debt interest rolled up;
debt principal repayment causes the balance to decrease.
Formula in J58: = IF(J53 = 1, $F52, J55 + J56 - J57)
Check out the modelling guide on modelling balances to
find out more about the standard corkscrew structure used
here.
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
DEBT BALANCE
9
9

15. Insurance cost is calculated by multiplying the debt beginning balance with a periodic
insurance cost rate.
Formula in K69: = $F67 * K68
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
10
10
INSURANCE COST
AND TOTAL DEBT COST

16. The total debt cost is calculated by adding together debt service and insurance cost.
Formula in K74: = SUM(K72:K73)
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
11
INSURANCE COST
AND TOTAL DEBT COST
11