ithout assistance. As such, most new businesses rely on small business loans to pay for startup expenses.
Finding a small business loan, however, can be a difficult process.
How much does a business loan cost?
Which lenders offer the best terms?
Without understanding how much you can afford and how to calculate your monthly payments, you could end up taking out a loan that you can’t pay back.
Fortunately, you can use a business loan calculator to easily calculate exactly how much you’ll end up paying for your small business loan.
Here’s why Business Loan Costs May Vary
How much a business loan costs depends on a number of factors.
Are you able to make a down payment? Can you put up collateral? Do you have good business credit?
These are a few of the main factors lenders will use to evaluate how much they are willing to lend you, what your interest rate will be, and how long you have to pay back the loan. Higher down payments, valuable collateral, and good credit will significantly your chance for approval and provide you with much better offers.
The three primary factors that determine the total cost of the loan are principal, interest, and repayment term. Interest rates, in particular, can dramatically increase or reduce the total amount that you will pay over time.
These three factors are what business loan calculators use to calculate how much your loan will cost.
It’s time to get to know all the numbers with a Loan Calculator
Business loan calculators are online tools that help potential borrowers to calculate the total cost of a loan, including interest.
After deciding how much you can afford on a monthly basis, a loan calculator will help you determine whether or not any loan offers you receive fit into your budget.
The 3 Easy Steps for Using a Business Loan Calculator
Using a business loan calculator is incredibly easy. You only need three things to get started: the loan amount, loan term, and interest rate.
- Loan Amount.The loan amount, or principal, is the total amount that you plan to borrow.
- Loan Term. The loan term is the time it will take to pay off the loan by making the minimum monthly payments. Shorter terms will decrease the total amount of interest paid but will increase the monthly payments.
- Interest (APR). Lastly, and perhaps most importantly, is the interest rate, also called the annual percentage rate (APR). Of course, lower interest rates are favorable but can be difficult to get as a new business. Your interest can add several thousands of dollars to the total long-term cost of a loan.
Using these factors, a business loan calculator can tell you the total cost of the loan, how much interest you will pay, and how much your monthly payments are.
For example, let’s say you take out a $25,000 loan with an 8% interest rate and a repayment term of 10 years.
Using a business loan calculator, you would find that your monthly payments would be $303.32 and the total interest paid would be $11,398.28.
This is an easy and quick way to determine whether or not you are able to afford a business loan. Keep in mind that your monthly payments should not exceed 80% of your business’ net profit and that the total cost of the loan should not outweigh your expected return on investment.
Don’t go into a Business Loan Blindfolded
A small business loan can be a great resource to help turn your passion into a business. However, it is important to know the total cost of a loan offer before agreeing to any terms.
Do you need help determining whether or not a small business loan would be worth the investment? If so, be sure to use a business loan calculator to calculate the total cost over time of a loan.