A business loan calculator is an online application that enables a business owner to estimate the cost of a loan in terms of the monthly payment, total interest, and the actual cost of the loan.

With the loan amount, interest rate, and repayment term entered, it allows for a quick analysis of alternative loan options to make appropriate financial decisions. It can be a great tool in budgeting and analyzing how borrowing affects a business's financials.

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Taking out a loan for your small business? Congratulations! Securing a small-business loan can unlock a world of growth opportunities and is a big financial milestone for many entrepreneurs.

However, that excitement quickly turns to surprise and frustration if you discover that that $100,000 loan ends up costing you $152,000 by the time you've paid it all off.

Before borrowing, it is very important to use a business loan calculator to completely understand the true cost of your loan. It helps you avoid any nasty surprises, allowing you to make informed decisions and pick the loan that best suits your business needs.

How to Calculate a Business Loan Using Small-Business Loan Calculator

Determine the total cost of your small business loan. To find out how much the loan will end up costing you, you need only the following information before entering our business loan calculator:

• Business Loan Amount-The amount of funds which you want to raise.
• Business Loan Interest Rate-An annual charge levied for raising the loans.
  Business Loan Tenor The payback period, in terms of months, while determining how much your EMI.
• Additional Monthly Installment– If you are looking at paying more than just the minimum monthly, calculate just how much adding this little extra would cost you for comparison.

You don't yet know actual numbers-you can only estimate what your interest rate is after you have accepted an approved offer-but putting in an estimated figure as close to accurate as you can will yield better results.

Enter all the information you'll need to complete and click the button to calculate your loan's total cost. The calculator will then generate an estimated figure showing how much you will owe with interest and fees.

You can try out many situations with a loan calculator. You are able to play around on the effect that changes to loan terms, interest rates, or additional payments could have on the cost of your loan. For example, you can compare having a long repayment period along with a low interest and a short repayment period as well as high rate.

It will break down the pay schedule so that you'll see very clearly which portion of it is going towards the interest and how much into the principal. This informs you how the loan would really affect your cash flows and thus makes you that much more informed in business decisions as you go.

How to get the most out of a loan calculator

Like we said, a loan calculator can show you the total cost of your loan (the loan principal plus any interest you’ll owe). And that’s great for seeing how much a loan will cost your business in the long run (because boy, interest can add up quickly).

But a loan calculator can give you plenty of other useful information―information that can help you make smarter, more informed decisions before you take out a loan.  

A loan calculator should show you the following:

• Total loan payback amount
• Estimated monthly payment
• Percentage of total repayment that goes to principal vs. interest
• Principal vs. interest amount for each payment (an amortization table)

So if, for example, you’re trying to decide between a loan with a longer repayment term and a lower interest rate (say, 10 years and 5%) and a loan with a shorter repayment term and a higher interest rate (like 7 years and 8%), the loan calculator can help you decide which to go with―whether you want the lower total payoff amount or the lower monthly payment. 

Likewise, a loan calculator can see if your monthly loan payment will fit in your business budget, or if it’s worth shopping around for a better interest rate.

Of course, you need to remember that a loan calculator only gives you estimates. So make sure you ask a lender for hard numbers before committing to a loan. 

Thankfully, a calculator’s estimates can give you plenty of information to help you choose the best loan for your business.

How to Get the Most Out of a Loan Calculator

A loan calculator helps you know the true cost of a loan, including monthly payments, total payback amount, and how much goes toward principal vs. interest. It may also provide an amortization table showing how payments are split over time.

You can use it to compare different loan options, such as long-term versus short-term loans, and ensure that payments fit within your budget. While estimates are helpful, always confirm the final terms with your lender before committing. A loan calculator is a powerful tool to make informed decisions for your business.

Interest Rates

The interest rate on your loan significantly impacts the total cost of borrowing.

For example, with a $50,000 five-year loan, a 6% interest rate results in a monthly payment of $966.64, with a total cost of $57,998.40. However, at a 12% interest rate, the monthly payment increases to $1,112.22, and the total cost rises to $66,733.34. (You can calculate this easily with a business loan calculator.)

While everyone wants a low interest rate, securing one isn’t always straightforward. Several factors influence the rate you’re offered, including your credit score, loan amount, loan term, business revenue, and cash flow. In general, a stronger credit history and a healthier business lead to lower rates.

The type of lender you choose also affects your rate. Traditional lenders, like banks, typically offer lower rates, while alternative lenders tend to charge higher rates due to their more flexible application processes.

The term of your loan determines how much interest is paid from the loan. A longer-term loan will yield more paid interest over the term while a shorter-term loan pays less in interest.

For the amortizing loans, all payments cover interest and principal. Yet the interest portion declines as the principal balance decreases. For example, the earlier payments go mostly towards interest. But the later payments will be applied towards the principal more.

The principal, which is the basis of the interest, could reduce total interest by making pre-payments before the due date of lower remaining principal. To better understand how pre-payment reduces your overall cost on an amortizing loan, always request an amortization table from your lender.

Loan Fees

Many lenders also charge fees when you accept a loan, including origination, processing, and packaging fees. Some charges may be flat fees; others may be a percentage of the loan.

Usually, these fees are deducted from the loan amount. If you are approved for a $10,000 loan, but the fees will total $500, you'll get only $9,500. This does not alter the cost of the loan; however, it might become problematic if you were to count on using the full loan amount. Always ask about fees prior to accepting a loan since this is not handled similarly among all lenders.

Moreover, some of the fees come during repayment. One common late payment fee results from missing a payment; other lenders have prepayment penalties for paying off loans early. Consider these fees when you make your selection.