Business Loan Calculator

Calculate monthly payments, total costs, and effective interest rates for business loans. This calculator includes loan fees to determine the true cost of your business financing.

Business Loan Calculator

Modify the values and click the Calculate button to use

Loan Information

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Loan Fees

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What is a Business Loan?

A business loan is a financial product designed to provide companies with capital for various purposes such as expanding operations, purchasing equipment, managing cash flow, or investing in new opportunities.

Unlike personal loans, business loans often come with different terms, rates, and fee structures. They may require financial statements, business plans, or collateral depending on the loan type and amount.

Business Loan Calculation Formulas

Monthly Payment Formula

The formula used to calculate the regular payment amount for a loan with compound interest is:

$$PMT = P \times \frac{r(1+r)^n}{(1+r)^n-1}$$

Where:

  • PMT = Payment amount per period
  • P = Principal (loan amount)
  • r = Interest rate per period (annual rate divided by payment periods per year)
  • n = Total number of payments

Annual Percentage Rate (APR) Formula

The APR takes into account the stated interest rate and any fees associated with the loan:

$$APR = \left( 1 + \frac{r}{m} \right)^m - 1$$

Where:

  • APR = Annual Percentage Rate
  • r = Nominal interest rate
  • m = Number of compounding periods per year

Loan Fee Calculation

Business loans often come with various fees that increase the total cost of borrowing:

$$\text{Total Fees} = (\text{Loan Amount} \times \text{Origination Fee \%}) + \text{Documentation Fee} + \text{Other Fees}$$

These fees are added to the total cost of the loan and factored into the effective interest rate calculation.

Types of Business Loans

Term Loans

Traditional business loans with a fixed repayment period, typically 1-10 years. They usually have fixed interest rates and regular payment schedules.

SBA Loans

Small Business Administration guaranteed loans that offer favorable terms for small businesses, though they often involve more paperwork and longer approval times.

Equipment Financing

Loans specifically for purchasing business equipment, which typically use the equipment itself as collateral.

Business Line of Credit

A flexible loan that allows businesses to draw funds as needed up to a predetermined limit, paying interest only on the amount borrowed.

Common Business Loan Fees

When comparing business loans, it's important to consider all associated fees, not just the interest rate. These fees can significantly impact the total cost of the loan.

  • Origination Fee: A percentage of the loan amount charged for processing the loan application and funding. Typically ranges from 1% to 5%.
  • Documentation Fee: A flat fee charged for preparing and processing loan documents.
  • Application Fee: A fee charged when submitting a loan application, which may or may not be refundable if the loan is denied.
  • Guarantee Fee: For SBA loans, a fee paid to the SBA for guaranteeing the loan.
  • Late Payment Fee: A fee charged when payments are not made by the due date.

How to Use This Calculator

  1. Enter the loan amount you need for your business.
  2. Input the interest rate offered by the lender.
  3. Select the compounding method and payment frequency that matches your loan terms.
  4. Enter the loan term in years and months.
  5. Add any fees associated with the loan to calculate the true cost of borrowing.

Tip:

Pay special attention to the APR (Annual Percentage Rate), as it provides a more accurate representation of the loan's total cost compared to the stated interest rate.

Frequently Asked Questions

What's the difference between interest rate and APR?

The interest rate is the basic cost of borrowing money expressed as a percentage, while the Annual Percentage Rate (APR) includes both the interest rate and additional loan fees. APR provides a more comprehensive view of the total cost of the loan and is useful for comparing different loan offers.

How do different compounding frequencies affect my loan?

More frequent compounding (like daily or monthly) typically results in slightly higher effective interest rates compared to less frequent compounding (like annually). This is because interest is calculated on both the principal and previously accumulated interest more often. For significant loan amounts or longer terms, the difference can be substantial.

What fees should I expect with a business loan?

Common business loan fees include origination fees (1-5% of the loan amount), documentation fees, application fees, and possibly prepayment penalties. SBA loans also include guarantee fees. Be sure to ask your lender for a complete disclosure of all fees before finalizing the loan agreement.

How can I reduce the cost of my business loan?

To reduce loan costs, consider improving your business credit score, offering collateral, choosing shorter loan terms (which typically have lower interest rates), negotiating fee reductions, shopping around with multiple lenders, and paying off the loan early if there are no prepayment penalties.

What's an amortization schedule and why is it important?

An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and interest that comprises each payment until the loan is paid off. It's important because it helps you understand how much of your money is going toward interest versus principal over time, allowing for better financial planning and potentially identifying opportunities to save money by making extra payments.