Business Loan Calculator

The Real Value of Business Loans

Some businesses require large amounts of capital to startup, expand operations, purchase equipment, or acquire other business entities. When used strategically, business loans can help enterprises achieve results they would not be able to on a cash basis.

Example

Acme Industries wants to improve the efficiency of its manufacturing facility. They need $2,000,000 to replace their old equipment. They don’t have the cash to pay for this equipment, but a business loan is a great option. While taking a loan has interest costs, the executive team believes they can increase their profits by 20% by upgrading the equipment. A business loan calculator can help the team decide if taking a loan is the right decision.

Adding the burden of debt is a big decision for business owners. If the company cannot make the payment, it will default on the loan. This could damage the business’s credit rating and even result in bankruptcy. A business loan calculator is a powerful tool to quickly calculate the actual cost of the debt to the company.

Understanding the Business Loan Payment Formula

The formula to calculate the payment on a business loan can get extremely complex. It’s important to have a basic understanding of how the formula works. However, our business loan calculator will do all the complex calculations for you.

The formula to calculate a business loan payment is:

$$P = A / ((1 + R)^n - 1) / R(1 + R)^n$$

• P = Loan Monthly Payment
• A = Loan Amount or Current Principal Balance
• R = Interest Rate
• N = Number of periods (number of months, years, etc.)

Additional Fees

Banks and financial institutions often charge additional fees to the business owner to cover the cost of filing paperwork and other administrative items. These fees can range from 1 to 6 percent of the total value of the loan. This amount is usually added to the principal loan amount. For example, if a small business borrows $100,000 and the loan fees are 5%, the total principal amount will be $105,000.

The formula to include additional fees on loans is the same. All you have to do is add the fees to your requested loan amount.

How to Use the Business Loan Calculator

Each business loan has different criteria, including interest rates, loan terms, repayment schedules, and additional fees. A business loan calculator will take all of the details provided by the lender to give the borrower a detailed look at the actual costs of the loan.

• Step 1: Enter the loan information into the fields, including loan amount, interest rate, loan duration, and the compounding method (if you are unsure, select Monthly APR, which is the most common method used).
• Step 2: Select the correct method in the payback schedule field. Most institutions require monthly payments; however, this could vary. The Interest Only option allows you to pay just the interest with the final principal due at the end of the loan. With the "In The End" option, you won’t make any payments (principal or interest) until the end of the term.
• Step 3 (Optional): If applicable, enter additional costs and fees in the last three boxes (Origination Fee, Documentation Fee, and Other Fees).
• Step 4: - Click Calculate and review the results. The calculation will show the loan payment amount due based on the selected payback schedule. You’ll also be able to see the total loan cost, real interest rate (including compounding over the length of the loan), and an amortization schedule.

Real Example

Let’s say you want to get a small business loan to start a landscaping business. You estimate it will cost $30,000 to purchase a truck and the necessary equipment. Your bank offers to give you the loan with a 10% interest rate (compounded monthly) and a loan term of 8 years. You’ll be required to pay on loan every month. The bank charges a 2% origination fee and $100 for the loan application.

To run this calculation, enter the following values into the business loan calculator:

• Loan Amount: $30,000
• Interest Rate: 10%
• Compound: Monthly (APR)
• Loan Term: 8 years and 0 months
• Pay Back: Monthly
• Origination Fee: 2%
• Documentation Fee: $100
• Other Fees: $0

Once you hit the Calculate button, you’ll see that your monthly payment will be $455.22. You’ll also see that the total cost of the loan will be $43,710.59 (including interest).

Key Benefits and Helpful Tips

Being able to make wise decisions when it comes to taking on debt can have a significant impact on the finances of your business. Here are some key benefits and tips for using our free loan calculator.

Key Benefits:

• No Memorizing Formulas - Calculating the details of a business loan can get complex, especially if there are unconventional terms. This calculator ensures that you get an accurate understanding of the true cost of the business loan.
• Additional Fees - Most small business loan calculators only use the loan principal amount. Including additional fees provides a more accurate estimate of the loan cost.
• Compare Multiple Loans - Sometimes, the terms of one loan are better than another. This calculator helps business owners compare loans quickly and decide which option is best for the business.

Helpful Tips:

• Think About Interest - While extending the length of your loan can lower your monthly payment significantly, it will also increase the total amount of interest you must pay.
• Calculate Cost-Benefit of Debt - When leveraged correctly, business debt can create opportunities to make additional profit. Using projected income and the results of this loan calculator, a business owner can evaluate if the benefit of the loan will exceed the cost of the loan’s interest.