BDC Loan Economics Calculator: Cash Interest, PIK and Credit Losses
See how a floating-rate private-credit loan turns borrower payments into BDC income, and how PIK, leverage and default can change the result.
Last updated: August 2026.
A private-credit loan is a small financial system.
The borrower receives capital today. Cash interest moves back to the lender during the loan. PIK interest enlarges the balance instead. Amortization returns principal, while the remaining balance must be repaid or refinanced at maturity.
For a BDC, that asset sits beside another obligation: the cost of financing its own balance sheet. The apparent loan yield is therefore not the same as the spread that remains for shareholders, and neither number protects the lender from a credit loss.
This calculator keeps those moving parts separate.
Model a BDC loan
Loan laboratory
See the same loan from both sides of the table
Change the terms, then follow cash interest, PIK, principal and funding cost through an annual ledger. The default scenario occurs at year-end after that year's interest accrues.
Important: This calculator is for informational and educational purposes only. It is a simplified hypothetical illustration, not a loan quote, valuation, accounting schedule, forecast, or investment recommendation. Actual loan documents, timing, recoveries and BDC expenses can differ materially. All lending and investing involve risk, including loss of principal.
Borrower view
Lender view
Read this carefully: principal repayment is returned capital, not income. PIK is accrued income, not cash. The after-funding result still excludes management fees, incentive fees, operating expenses, taxes and every other asset on a BDC's balance sheet.
Annual loan ledger
The short answer
A typical BDC loan may charge a floating benchmark rate plus a contractual spread. A floor can keep the benchmark used by the loan from falling below a stated minimum. Cash interest is paid during the term. PIK interest is added to principal and usually collected later, if the borrower can pay.
OID and certain origination fees can increase the lender's effective yield because the amount funded may be below the principal amount due. Scheduled amortization reduces outstanding principal before maturity. A default can interrupt all of those expected cash flows and replace them with a recovery that may be far below par.
Follow the capital
The model begins with borrower proceeds and ends with lender cash flows.
- The BDC commits a principal amount.
- OID and upfront fees reduce the modeled cash the borrower receives.
- The effective benchmark equals the higher of the entered base rate and floor.
- Cash interest is paid on the beginning balance.
- PIK interest is added to principal rather than paid in cash.
- Scheduled amortization returns part of the original principal.
- The remaining balance is due at maturity, unless the default scenario is triggered.
- The BDC's funding cost is charged against average outstanding loan balance.
That chain matters because the same accounting income can have very different cash quality. Cash interest arrives now. PIK increases the claim against the borrower. OID accretion recognizes part of a discount over time. None is economically complete until the loan pays.
Read the borrower side
Initial cash proceeds are modeled as principal less OID and upfront fees. Actual loan documents may treat fees differently, and some costs may be paid separately.
First-year cash coupon uses the higher of the benchmark or floor, plus the cash spread.
First-year cash debt service combines cash interest and scheduled principal. It excludes PIK because PIK is not paid in cash during that year.
Balance due or recovered is the remaining principal after PIK and amortization. In a no-default scenario it is paid at maturity. In a default scenario the model applies the selected recovery percentage in the selected year.
Read the lender side
Cash interest is lender income received during the scenario. PIK accrued is non-cash interest added to the claim. The model does not imply that PIK will be collected.
OID and fee income is included through the difference between initial cash funded and contractual principal. This is a simplified cash-flow treatment, not an accounting schedule.
Funding cost estimates what the BDC pays to finance the loan asset. A real BDC uses a mix of unsecured notes, secured facilities and equity, with different maturities and costs.
Gross lender IRR is the annualized rate that equates modeled lender outflows and inflows. It is before management fees, incentive fees, corporate expenses, taxes and portfolio effects. It is not the return earned by a BDC shareholder.
What a default changes
Choosing a default year stops scheduled interest and principal cash flows after the modeled recovery in that year.
The modeled credit loss equals the contractual balance immediately before recovery minus the recovery received. A 60% recovery does not mean a 40% loss on the BDC's equity. It means a 40% loss on that modeled loan balance before considering the BDC's leverage, other assets, expenses and taxes.
This is deliberately simple. Real workouts can include amendments, delayed payments, restructuring fees, additional capital, equity conversions, legal expenses and recoveries spread across several years.
What to watch
Run the model once with no PIK and once with a higher PIK rate. Then add an early default. The comparison shows how quickly reported income can separate from cash collection and how much of the apparent spread depends on a successful maturity payment.
Also lower the benchmark below the floor. The coupon will stop falling when the entered floor becomes binding, while the BDC's own funding cost may not move in the same way.
Why the model separates cash and PIK
PIK can be a negotiated feature of a healthy growth loan, a temporary accommodation, or a sign that the borrower cannot support the full cash coupon. Context determines which interpretation is fair.
The lender can recognize contractual PIK as income while receiving no cash. If the borrower ultimately defaults, some or all of that accrued amount may never be collected.
For investors, the question is not merely whether PIK exists. It is whether PIK is collectible, how concentrated it is, why it was used and whether portfolio value supports the accrual.
What the calculator leaves out
The model uses annual periods and a constant benchmark rate. Real loans may reset monthly or quarterly.
It excludes prepayments, amendment fees, delayed-draw commitments, revolvers, unused fees, equity warrants, taxes, hedges, management fees, incentive fees and changes in credit marks before default.
Scheduled amortization is calculated as a percentage of original principal and is applied after annual PIK. Actual credit agreements can use different conventions.
Funding cost is applied to average beginning and ending loan balance. It is a simplified asset-level allocation, not a BDC income statement.
Why these loans exist
Private credit can finance equipment, acquisitions, working capital, software, healthcare services and the ordinary expansion of middle-market businesses. It can also refinance existing obligations or fund transactions that create less obvious productive capacity.
The source of repayment is still the same: a business must produce enough cash to service the loan or enough durable value to support refinancing and recovery.
That is the connection between capital and prosperity. Public savings can help fund private companies through BDC balance sheets, but the allocation only works when the underlying business creates value and the lender prices risk honestly.
Investor quick answers
What does SOFR plus 6% mean?
It means the loan's stated rate equals the applicable SOFR benchmark plus six percentage points, subject to the credit agreement's definitions, reset dates and any floor.
What is a rate floor?
A floor is the minimum benchmark used to calculate a floating-rate coupon. If the benchmark falls below the floor, the floor is used instead.
Is PIK interest cash income?
No. PIK is added to principal rather than paid in cash. It can be recorded as interest income, but collection depends on the borrower's eventual ability to pay.
Is principal repayment lender income?
No. Principal repayment is the return of capital. Interest, fees and discount accretion are income components.
Does gross loan IRR equal a BDC shareholder's return?
No. A BDC shareholder's result also reflects leverage, credit marks, losses, operating expenses, management and incentive fees, taxes, dividend policy, NAV and the market price paid for the shares.
Read next
Read Floating-Rate Loans Explained for the benchmark-and-spread mechanics.
Read PIK Income Explained before treating non-cash interest as equivalent to collected cash.
Read What Are Non-Accruals? to understand what happens when a lender stops recognizing contractual interest.
Methodology
The calculator uses annual periods. Each year starts with the contractual principal balance. Cash interest equals beginning balance multiplied by the effective benchmark plus cash spread. PIK equals beginning balance multiplied by the PIK rate and is added to principal. Scheduled amortization equals the lower of the remaining balance and the selected percentage of original principal.
In the no-default scenario, remaining principal is repaid at maturity. In a default scenario, the selected recovery percentage is applied to the balance after that year's PIK and before scheduled amortization; later cash flows are zero.
Lender cash flows begin with principal less OID and upfront fees. Later cash flows include cash interest, scheduled principal, recovery or maturity principal. Gross IRR is solved from those annual cash flows. Funding cost uses the average beginning and ending balance for each active year.
Source Notes
The BDC risk framework follows the SEC's investor bulletin on publicly traded BDCs. The floating-rate and floor mechanics are consistent with current BDC filings, including Main Street Capital's rate-sensitivity disclosure. The treatment of PIK and original issue discount follows current SEC-filed BDC accounting disclosures: contractual PIK is added to loan principal rather than paid in cash, while discounts and certain origination fees are generally recognized over the instrument's life.
Disclosure
The Drift is published by Drift Research LLC for informational and educational purposes only. Nothing published by The Drift constitutes personalized investment advice, financial advice, tax advice, accounting advice, legal advice, or a recommendation to buy, sell, or hold any security. The Drift is not a registered investment adviser, broker-dealer, financial planner, or fiduciary. Data and calculations are derived from sources believed reliable and from methods described in the applicable source and calculation notes, but they may contain errors, estimates, rounding differences, or information that has become outdated. Readers should review the original sources and make their own assessment. All investments involve risk, including possible loss of principal. Past performance and hypothetical results do not guarantee future results. Consult qualified professionals before acting.