Business Loan Calculator
Calculate and analyze business loan payments, costs, and amortization schedules
A business loan is a financial product that provides companies with the capital they need for various purposes, such as:
- Starting a new business
- Expanding operations
- Purchasing equipment or inventory
- Managing cash flow
- Refinancing existing debt
Understanding the terms, costs, and repayment structure of a business loan is crucial for making informed financial decisions.
Amortized Loans
Amortized loans have regular payments that include both principal and interest. Each payment reduces the loan balance, and the proportion of principal to interest changes over time.
Interest-Only Loans
With interest-only loans, you only pay the interest during the loan term, with the principal due at maturity. This results in lower regular payments but requires a large final payment.
Payment Frequencies
- Monthly: Most common, with 12 payments per year
- Quarterly: Four payments per year
- Annually: One payment per year
The calculator uses different formulas depending on the loan type:
Amortized Loan Payment Formula
For amortized loans, the payment is calculated using the following formula:
Payment = P × (r × (1 + r)^n) / ((1 + r)^n - 1)
Where:
- P = Principal loan amount
- r = Periodic interest rate (annual rate ÷ periods per year)
- n = Total number of payments
Interest-Only Payment Formula
For interest-only loans, the regular payment is simply the periodic interest:
Payment = P × r
The amortization schedule shows how each payment is split between principal and interest over the loan term. Key points to understand:
- Early payments are mostly interest, with a small portion going to principal
- As the loan balance decreases, more of each payment goes toward principal
- The final payment brings the loan balance to zero
- Total interest paid can be significant over the life of the loan
What is APR and how is it different from the interest rate?
APR (Annual Percentage Rate) includes both the interest rate and additional fees, providing a more complete picture of the loan's cost. The interest rate only reflects the cost of borrowing the principal amount.
Should I choose an amortized or interest-only loan?
The choice depends on your business needs. Amortized loans offer predictable payments and gradual debt reduction. Interest-only loans have lower regular payments but require a large final payment, which might be suitable for businesses with irregular cash flow or those planning to refinance.
How do additional fees affect my loan?
Additional fees like origination fees and closing costs increase the total cost of borrowing and the effective APR. While they might seem small compared to the loan amount, they can significantly impact the overall cost over time.
Can I pay off my loan early?
Many business loans allow early repayment, but some may charge prepayment penalties. Check your loan terms carefully and calculate whether the interest savings from early repayment outweigh any penalties.