Business Term Loan Calculator
Calculate Your Payments and Total Cost of Borrowing
Table of Contents
- Business Term Loan Calculator - Find Out Payments, Interest & More
- What Is a Business Term Loan?
- How to Use the Term Loan Calculator
- Understanding Your Results
- Where to Find Business Term Loans
- Final Thoughts
Business Term Loan Calculator - Find Out Payments, Interest & More
When you take out a loan, chances are, you have three paramount concerns: How much can I afford to finance, over what period? What will my payments be? And how much will this loan cost me in the long run?
Fortunately, business term loans with their fixed payoff structures are one of the easiest financing products to calculate. Just plug the numbers into our Business Term Loan Calculator to find the answers to these questions and more.
What Is a Business Term Loan?
If you’ve ever financed a vehicle, home or tuition, you’re already quite familiar with term loans and how they work. You receive a sum of cash for a specific purpose, and you pay it back with fixed, equal payments over a set term—a process known as “amortization.”
The interest owed is front-loaded, with most of your installment going towards interest early in the life of your loan. And with each subsequent installment, a higher percentage of the payment is applied against the loan’s principal.
To get a better handle on amortization, let’s run through a quick example.
Sample Amortization Table
Bob the baker takes out a $25,000 term loan to update his commercial kitchen. He’s quoted an interest rate of 7 percent and a term of 4 years. Over the life of the loan, Bob the baker will make a total of 48 monthly payments, totaling $599.
How Do I Read an Amortization Table?
As you can see, the table is broken down into five parts: Installment, Payment, Interest, Principal and Balance.
The installment column indicates the number of payments made and the number of payments remaining. In this example, Bob the baker’s loan is broken into 48 payments.
The payment of $599 remains constant throughout the life of the loan. This payment is applied against the loan’s total interest and principal. The amount applied to interest diminishes as payments are made, while the total applied to principal, rises.
The balance of the loan is reflected in the last column. The beginning balance is the total amount financed. In the example given, Bob the baker took out a $25,000 loan. With each payment, the balance falls until it reaches zero at the time of loan maturity.
When everything is said and done, Bob the baker will pay $28,735—$3,735 in interest.
How to Use Our Business Term Loan Calculator
Fortunately, putting together an amortization schedule is as easy as opening an Excel document. With its built-in formulas, an amortization schedule in Excel can be generated in minutes. However, other online tools can make this process easier. Our Business Term Loan Calculator is one option. Input:
Loan Amount: Business term loans range in size from $10,000 to $2 million. Enter the amount you wish to borrow, here.
Estimated Interest Rate: Term loan interest rates start at 7%, but can go as high as 24% depending on your business’s overall creditworthiness and financial health.
Loan Term: You can finance term loans with lengths and payment structures as varied as one year with weekly payments to 5 years with monthly payments. The longer the term, the lower the payments and vice versa.
Understanding Your Results
The business term loan calculator will output the weekly or monthly Payment, the Total Repayment Amount and the Cost of the Loan. You can dive deeper into the calculations by selecting the Amortization Table for a detailed, payment-by-payment schedule leading up to your final payoff date.
Here’s what the numbers tell you:
- Payment: This is the fixed amount you’ll repay each month (or week) in principal, interest and fees.
- Total Repayment Amount: Your total repayment amount estimates what you’ll pay over the life of the loan, including all principal, interest and fees.
- Cost of the Loan: This sum represents what the lender is charging you to finance the loan in interest and fees. If you pay off the loan early, you may be able to reduce this number, but be aware of prepayment penalties.
- Amortization Table: As we covered in detail above, an amortization table provides a granular itemization of your loan payoff schedule, detailing how much interest and principal is paid off with each payment.
As you run the numbers, we encourage you to explore several different “what if” scenarios. Adjust the loan amount, interest rate and term to see how much of an impact these factors have on repayment. Like many, you may be drawn to a 60-month term over a 24-month term as you’ll pay less with each installment. On the downside, stretching out the loan means you’ll pay more in interest—effectively increasing your total cost of capital. For this reason, it’s important to consider the big picture and take all factors into account before coming to terms on a loan agreement.
Where to Find Business Term Loans
Both banks and online lenders provide term loans to small business owners. Banks traditionally offer more favorable terms than their online lending counterpart. Unfortunately, the strict underwriting requirements at traditional lending institutions result in lower instances of approval for small business owners. According to the National Small Business Association, financing continues to be a challenge for small business owners particularly at large banks, where the number of small businesses relying on bank financing has hovered at just 15 percent. Also, banks take longer to fund, due in part to the extensive underwriting process.
As an alternative, small business owners can look to online lenders. Though they typically carry higher costs and shorter terms, the tradeoff is speed, convenience and less stringent qualifications.
If you have a personal credit score of 600 or better, your business generates a minimum annual revenue of $100K and you have been in business for a year or more, you may qualify for a business term loan. And unlike traditional lenders, funds are distributed quickly—in certain circumstances, as fast as one day.
Get Answers with a Business Term Loan Calculator
Small business financing comes in many forms, from many sources. There are term loans and lines of credit. Some loans are secured and others are unsecured. You can obtain a loan through a bank, credit union or from an alternative lender.
With all of these options, it’s easy to feel overwhelmed. For this reason, we recommend you start your search with our small business loan calculator. By plugging in various “what if” scenarios, you’ll come away with a clearer understanding of what you can and cannot afford, what your loan payments might look like and how that will impact your operating cash flow.
If you have additional questions, talk to a Business Advisor. We’re here to help you uncover your lending options, compare the terms, crunch the numbers and identify the best financing option for your unique needs. Call us at (800) 735-6107 or click here to speak directly with one of our dedicated advisors.