How a Business Loan Calculator Works
A business loan calculator computes your monthly payment using the standard amortization formula, then accounts for origination fees to show the true effective APR. Unlike a basic loan calculator, it also deducts the origination fee from the loan proceeds — so you can see exactly how much cash your business actually receives versus how much you repay.
The term comparison table lets you instantly see how changing the loan term affects your monthly payment and total interest cost. A shorter term means higher monthly payments but dramatically lower total interest, while a longer term frees up monthly cash flow at a higher total cost.
The Business Loan Formula
- Monthly Payment = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
- Origination Fee = Loan Amount × Fee %
- Loan Proceeds = Loan Amount − Origination Fee
- Effective APR = rate that equates present value of payments to loan proceeds
What to Consider Before Taking a Business Loan
Business loans come in many forms — term loans, SBA loans, lines of credit, equipment financing, and merchant cash advances. Each has different pricing structures, and the stated interest rate rarely tells the whole story. Always compare effective APR across competing offers.
- Debt service coverage ratio (DSCR): most lenders want your monthly net income to be at least 1.25× your monthly loan payment.
- SBA 7(a) loans typically offer the lowest rates but have stricter qualification requirements and longer approval times.
- Origination fees of 1–5% are common with online business lenders and significantly raise the effective APR.
- Prepayment penalties: some lenders charge a fee if you pay off the loan early — factor this in if you expect strong cash flow.
Frequently Asked Questions
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing expressed as a percentage of the loan balance. The APR (Annual Percentage Rate) includes the interest rate plus all fees — such as origination fees — expressed as a single annual rate. The APR is always the number to compare when shopping for loans because it reflects the true cost of borrowing.
How much can my business borrow?
Lenders typically look at annual revenue, time in business, credit score, and profitability. As a general rule of thumb, most term loans are limited to 10–15% of annual revenue. SBA loans can go higher but require more documentation and collateral.
Should I choose a shorter or longer loan term?
Shorter terms reduce total interest cost but increase monthly payments and cash flow pressure. Longer terms lower monthly payments but significantly increase total interest paid. Use the comparison table in this calculator to find the term that balances cash flow needs with total cost minimisation.