A business loan calculator is a useful tool for entrepreneurs to
quickly estimate monthly repayments, interest rates, and borrowing
costs, aiding in informed financial decisions.
How much is your loan amount?
$1K
$1M
What is your estimated interest rate
6%
35%
What is your loan term?
2 year
7 year
Using a business loan calculator is a straightforward process that helps you estimate your loan repayments and make informed financial decisions. Begin by entering the loan amount, desired loan term, and estimated interest rate. Choose the repayment frequency that suits your business's cash flow, then click "Calculate" to obtain the results. Review the generated figures, including the monthly repayment amount, total interest paid, and overall repayment amount. Explore different loan scenarios by adjusting the loan details to understand their impact on your finances. With a business loan calculator, you can confidently plan and navigate your business loan journey.
Several factors related to your business can impact the loan amount you may be eligible for:
Business start date & annual revenue: When evaluating your eligibility for debt, lenders consider the start date of your business and its annual gross revenue. Gross revenue refers to the total income before deducting expenses. Lenders aim to ensure that your business generates sufficient earnings to cover the debt, influencing the loan amount based on your business's financial performance.
Last month’s sales: this information assists lenders in assessing your business's available cash reserves and determining your ability to make monthly debt payments. When seeking a loan, you might be asked to provide bank statements demonstrating your historical deposits.
Your credit score: Having good or excellent credit may qualify you for a higher loan amount, whereas fair or poor credit could result in a smaller loan. Additionally, your business credit score plays a role, as a robust profile can enhance your chances of obtaining a larger loan during the application process.
Home based vs Not: A home-based business refers to any business operated from a personal residence. Such businesses may have limited assets available for collateral when applying for a loan, which can impact the loan amount that can be obtained.
When evaluating your loan application, a lender may request additional details that can influence the final loan amount. These may include your business plan, financial forecasts, and collateral.
The loan amount you can borrow may be determined by the monthly payment size that you can comfortably afford. It is advisable to calculate your desired monthly payment before seeking funding to ensure it aligns with your budget. Several factors, such as:
Business loan amounts typically vary from $25,000 to over $1 million, depending on the lender. Banks generally offer larger loan amounts compared to online alternative lenders. However, qualifying for an online loan may be easier than obtaining a loan from a bank.
The specific type of business loan you require will also influence the loan amount. For example, U.S. Small Business Administration (SBA) loans can reach up to $5 million, while equipment loans may range from $50,000 to $1 million. The size of your business expense will determine the appropriate loan type you would pursue.
Interest rates play a significant role in determining the total cost of business loans and can differ among lenders. Additionally, you may encounter various types of interest rates. Some commonly encountered forms of interest on business loans include:
Annual percentage rate (APR): Compounding annual interest encompasses additional fees, such as loan origination fees and closing costs.
Annual interest rate (AIR): Compounding annual interest, excluding any loan fees..
Factor rate: The factor rate, a decimal value obtained by multiplying the initial loan amount, represents the comprehensive financing cost. It's important to note that the factor rate does not include any associated loan fees.
The determination of whether your interest rate is high or low hinges on the level of risk associated with you as a borrower. Lenders evaluate your personal credit score, as well as your business credit score if applicable, alongside your business's financial position to assess your risk level. Additionally, factors such as your business's longevity and annual revenue may also be considered.
Before obtaining a business loan, it is essential to clarify whether your interest rate remains fixed or variable throughout the loan term. This information should be clearly stated in your loan agreement. To estimate the loan repayment duration based on a specific interest rate and monthly payment, you can utilize a business loan amortization calculator.
If your interest rate is stated as APR, it's important to note that it encompasses various fees within the rate. However, if your interest rate is not expressed as APR, you have the option to either pay these fees upfront or at the conclusion of your loan term. Some typical examples of fees associated with business loans are as follows:
Origination fee: Covers the cost of processing and approving your loan application.
Service or processing fees: Covers the expense of activities such as billing and managing your account.
Prepayment penalty: Paying off your loan early may result in a prepayment penalty.
Late payment fee: Charged when you make a payment past the due date
Make sure you consult with your lender to determine the timing and payment procedures for these fees. Depending on the circumstances, these fees could impact your monthly loan installments, while in other instances, they might require separate payment alongside your regular recurring monthly payments.
The duration of your loan term indicates the timeframe you have to fully repay your debt. Loan terms can range from a few months to several years, depending on the lender and loan type. SBA loans typically offer the longest maximum terms, spanning from 10 to 25 years, while traditional bank loans can have terms of up to 10 years.
Online loans generally have shorter terms, often requiring repayment within as little as three months. These loans typically carry higher interest rates compared to bank loans. It's important to consider that the shorter repayment timeline, combined with accruing interest, may result in higher monthly payments.
Once you have determined your borrowing capacity and the loan payment size within your means, it is time to explore business loan options that align with your requirements. As mentioned previously, there are multiple types of business loans available, each offering different loan terms and repayment schedules. Initially, you can consider three broad categories of business loans before narrowing down your selection.
Online business loans offered by alternative lenders often have flexible borrower requirements and rapid funding, sometimes within one business day. However, online loans are often accompanied by higher interest rates compared to traditional bank loans, making them more expensive. Loan amounts for online loans tend to be smaller, usually capped at $750,000. Nonetheless, if you require swift access to funds to address a small or medium-sized business expense and can afford the associated costs, especially if your credit profile is less than ideal, an online loan may be a suitable option.
SBA loans, facilitated by banks and other financial institutions, are supported by the U.S. Small Business Administration (SBA). The SBA's backing reduces risk for lenders, making it simpler for them to approve borrowers who may not meet typical financing requirements. While individual lenders may set their own interest rates, the SBA imposes rate caps to ensure affordable loan costs, making SBA loans an attractive financing choice.
If your business is well established, opting for traditional bank financing might be a suitable choice. Building a good relationship with the bank over time may qualify you for favorable rates and terms. Additionally, banks typically offer the potential for larger loan amounts compared to online lenders. However, keep in mind that bank loan approvals may take a few weeks or even months to process.
It is important to conduct thorough research and compare loan offers from different lenders. Find a lender that can provide the desired loan amount at affordable rates, along with a repayment schedule that aligns with your business's financial capabilities.
