I ran UrbanGate Capital for nearly two years before I could tell you the difference between Dutch and Non-Dutch interest. I knew what I was doing in practice — some lenders charged interest on the full committed loan amount from day one, others only charged on what had actually been sent to the borrower — but I couldn't name either one. The terminology just never came up until it mattered.
If you're in the same spot, here's the plain-language breakdown.
Non-Dutch interest means the borrower only pays interest on funds that have been disbursed to them. If you commit to a $300,000 loan but only $200,000 has been sent out so far, the borrower is paying interest on $200,000. The remaining $100,000 hasn't hit their account yet, so it doesn't accrue.
Dutch interest (sometimes called "full boat") means the borrower pays interest on the full committed loan amount from the moment the loan closes — regardless of how much has actually been funded. That same borrower with a $300,000 commitment pays interest on all $300,000 on day one, even if $100,000 is still sitting in your account waiting to be drawn.
Non-Dutch is the more borrower-friendly structure, and that's largely why it's the default for straightforward term loans. The borrower only pays for what they have. It's easy to explain, easy to defend, and it tends to reduce friction during the sales process.
At UrbanGate Capital, Non-Dutch is our standard. For most of our loans, it makes sense. The funds go out in one lump, the borrower has everything they need, and the interest calculation stays clean.
Here's where the logic shifts: construction loans and heavy renovation deals with large draw schedules.
Say you originate a $500,000 loan with a $200,000 renovation draw built in. At closing, you fund the acquisition portion — maybe $300,000 — and hold $200,000 in reserve until the borrower hits predetermined construction milestones and formally requests the draw.
That $200,000 sitting in reserve is your capital. You've committed it, you can't deploy it elsewhere, and depending on where it's parked, it's earning close to nothing. If the borrower pulls the draw in week three, great — that's a short window. But if the project runs long and that money sits for four or five months before it gets drawn, you've been carrying dead capital the entire time.
Dutch interest exists to account for exactly that. You committed the full $500,000. You're off the table for other deals by that amount. Charging interest on the full committed balance from day one reflects the real cost of that capital allocation.
The gap between Dutch and Non-Dutch isn't just philosophical — it shows up in your actual returns.
On a $200,000 draw held in reserve for 90 days at a 10% annual rate, Non-Dutch means you collect no interest on that portion for the entire quarter. Dutch means you collect roughly $5,000 on that same capital. Across a portfolio with multiple active construction loans, that difference compounds quickly.
Most lenders who default to Non-Dutch across every loan type have never run that math. It's worth running.
Glass allows you to configure interest calculation at the loan level — Dutch or Non-Dutch — so your software matches your lending strategy rather than forcing you to work around it. For lenders running a mix of term loans and construction deals, that flexibility matters.
If you're writing construction loans and applying Non-Dutch across the board out of habit, it may be time to revisit how each deal is structured. The difference between the two methods isn't just a line in a contract — it's a real number on your bottom line.
Glass is loan management software built for private lenders. If you want to see how Glass handles interest configurations, draw schedules, and portfolio tracking, book a demo.