Business Loan Calculator

The Payment Formula Behind a Business Term Loan

When a lender quotes a fixed rate and a fixed term for a business loan, each monthly payment comes from the same level-payment equation: $$M = P \cdot \frac{r(1+r)^n}{(1+r)^n - 1}$$

What Business Lenders Look At Besides the Rate

A business loan decision leans on things a consumer loan never asks about: how long the company has operated, its cash flow and bank statements, the industry it works in, and whether the owners will back the loan personally. A company with several years of steady deposits usually gets a better offer than a startup asking for the same amount, and the owner's personal credit history often matters even when the borrower on paper is the company.

SBA 7(a) and 504 Loans, Conceptually

The U.S. Small Business Administration does not usually lend the money itself. In its main loan programs it guarantees a portion of a loan made by a participating lender, which lowers the lender's risk of loss and makes it more willing to approve a small business that might not qualify for a conventional loan. The 7(a) program is the general-purpose option, used for working capital, equipment, buying a business, or refinancing debt. The 504 program is aimed at large fixed assets such as commercial real estate or long-lived equipment, and it is typically structured as a lender's loan combined with a second loan through a nonprofit certified development company. Each program has its own eligibility rules, fees, and rate limits, so treat the SBA site as the authority and use this calculator only for the payment math once you have a real quote.

Personal Guarantees, Collateral, and UCC Liens

Many small business loans are backed in two ways at once. First, the lender takes a security interest in business assets such as equipment, inventory, or receivables, and records it by filing a UCC-1 financing statement, a public notice that the lender has a claim on those assets. A blanket lien covers essentially all business assets rather than one named item, which can make it harder to get a second loan later. Second, the owner signs a personal guarantee, which makes the owner individually responsible for repayment if the company cannot pay. Lenders commonly ask for guarantees from anyone who owns a meaningful share of the company, and SBA-backed loans have their own guarantee requirements.

Debt Service Coverage Ratio With a Worked Example

Lenders test affordability with the debt service coverage ratio: DSCR = net operating income ÷ total annual debt service. A ratio of 1.0 means income exactly covers the debt payments, and lenders generally want a cushion above that. Suppose a business earns 80,000 dollars of net operating income a year and already pays 30,000 dollars a year on an existing loan. It applies for the 100,000-dollar loan in the example below, which adds about 24,910 dollars a year (12 payments of roughly 2,076 dollars). Total debt service becomes about 54,910 dollars, so DSCR = 80,000 ÷ 54,910 ≈ 1.46. The same business asking for a much larger loan would see the ratio fall toward 1.0 and might be declined even if the interest rate were attractive.

Term Loan, Line of Credit, or Merchant Cash Advance

A term loan pays out once and is repaid on a fixed schedule, which is what this calculator models. A line of credit is revolving: you draw and repay as needed and pay interest only on the balance in use, so there is no single amortization schedule. A merchant cash advance is not technically a loan at all but a purchase of a share of future sales, repaid as a percentage of daily or weekly receipts, and it is priced with a factor rate instead of an interest rate.

Why a Factor Rate Is Not an APR

A factor rate is a simple multiplier. An advance of 50,000 dollars at a factor rate of 1.3 means the business repays 65,000 dollars in total, a fixed cost of 15,000 dollars regardless of how fast it pays. That looks like 30 percent, but an APR spreads cost over the time money is actually outstanding. Because the balance shrinks as payments are taken, the same 15,000 dollars is charged on a balance that is much smaller on average, so the equivalent annual percentage rate is far higher than 30 percent, and paying early usually does not reduce the cost. Never compare a factor rate directly against a term loan's interest rate.

Worked Example

A 100,000-dollar business loan at 9% over 5 years: the monthly rate is 9% ÷ 12 = 0.75%, and n = 60 payments. Plugging into the formula gives a monthly payment of about 2,076 dollars, with roughly 24,550 dollars in total interest paid over the 5 years.

Business Loan Vocabulary

Term Loan — a lump sum repaid on a fixed schedule with a set rate and end date, as opposed to a revolving line of credit.

UCC-1 Lien — the public filing a lender makes to record its claim on business assets pledged as collateral.

Personal Guarantee — a promise by an owner to repay the loan from personal assets if the business cannot.

Factor Rate — the multiplier used to price a merchant cash advance; total repayment equals the advance times the factor.

Debt Service Coverage Ratio (DSCR) — net operating income divided by annual debt payments, the standard measure of whether a company's earnings can carry a loan.

Origination Fee — a one-time charge, often a few percent of the loan on business and SBA term loans, subtracted from the funds you receive. The field above shows the cash that actually lands in your account; the monthly payment is still based on the full loan amount.

SBA Guarantee Fee — a separate one-time fee on SBA 7(a) loans, charged on the guaranteed portion and also deducted from proceeds at closing rather than added to the monthly payment.

Sources & Further Reading

• U.S. Small Business Administration — Loans: overview of the SBA loan programs, including 7(a) and 504.
• U.S. Small Business Administration — 7(a) loans: the SBA's description of its main general-purpose loan program and how the guarantee works.

This calculator gives estimates for information only. It is not a loan offer or financial advice, and real business loan terms depend on the lender and the business, so confirm every figure with your lender.