How this business loan calculator works
This business loan calculator estimates your payment, total interest, total fees, and the real rate of the loan once fees are counted. It also works as a commercial loan calculator or a small business loan calculator, since the math is the same for any fixed-rate term loan.
The interest rate is first converted to a rate per payment period, using your compounding choice. A rate compounded m times a year has a rate per compounding period of i = rate ÷ m, and with p payments a year the equivalent rate per payment is:
r = (1 + i)^(m ÷ p) − 1
With continuous compounding, r = e^(rate ÷ p) − 1. The regular payment is then:
Payment = Loan amount × r ÷ (1 − (1 + r)^−n)
Here r is the rate per payment and n is the number of payments. A $50,000 loan at 9% compounded monthly over 5 years has r = 0.75% and n = 60, so the payment is about $1,037.92 a month.
Ways to repay a business loan
- Regular payments: equal payments from daily to yearly that repay interest and principal together. Daily and weekly payments are common with some online lenders.
- Interest only: you pay the interest every month and repay the whole principal at the end, which keeps payments low but leaves a large final bill.
- All at maturity: nothing is due until the end, when you repay the principal and all the interest that has built up.
Business loan fees and the real rate
Lenders often charge an origination fee, shown here as a percent of the loan, along with documentation and other fees. This calculator treats all fees as taken out when the loan is funded, so you receive less cash but repay the full amount.
The real rate is the yearly rate at which the present value of your repayments equals exactly the cash you received, the same idea behind the APR in federal Truth in Lending rules. It is found by trial and stated with the compounding you chose, so it can be compared directly with the interest rate. In the example above, 3% plus $500 in fees comes to $2,000, so you receive $48,000 and the real rate is about 10.8% compounded monthly rather than 9%. Comparing real rates is a better way to weigh business loan rates than comparing interest rates alone.
The real rate appears only when a loan has fees. It is this calculator's own measure, not a lender's official APR disclosure, which follows its own rules for which fees count and how payment periods are measured.
Using this as an SBA loan calculator
SBA loan programs reach borrowers through other lenders: 7(a) loans through SBA-authorized lenders, 504 loans through Certified Development Companies, and microloans of $50,000 or less through intermediary lenders. You can estimate a fixed-rate SBA loan here by entering the rate, term, and fees your lender quotes. 7(a) rates are negotiated with the lender up to SBA maximums and may be fixed or variable. With a variable rate, the result only holds until the rate changes. A lender may pass the SBA upfront guaranty fee on to you, so include it in the fees if it is charged.
What the results leave out
This is an estimate, not a loan offer. It assumes a fixed rate and no missed or extra payments. It doesn't cover collateral, personal guarantees, prepayment penalties, or variable rates. Factor-rate products such as merchant cash advances are priced differently and can't be entered here. If a term doesn't divide evenly into payments, the last payment is a smaller partial one and no schedule is shown. Schedules are also omitted for daily and interest-only repayment.
Frequently asked questions
How do you calculate a business loan payment?
Convert the interest rate to a rate per payment, count the payments, and use the formula above. Or enter the loan amount, rate, and term in the calculator.
What is the difference between the interest rate and the real rate?
The interest rate covers only the cost of borrowing. The real rate also counts the fees, so it shows what the money actually costs.
Does a commercial loan calculator work differently?
No. Commercial and business term loans use the same payment math. Commercial real estate loans may have a balloon payment, which this calculator doesn't model apart from interest-only repayment.
Why do daily payments cost a little less interest?
Paying more often reduces the balance sooner, so less interest builds up. Each payment comes out of your cash flow sooner, though, so the real rate can still be higher.
What's changed
- Launched with amortized, interest-only, and pay-at-maturity repayment, and a real rate that includes loan fees.
References
- Consumer Financial Protection Bureau (CFPB) — What Is the Difference Between a Mortgage Interest Rate and an APR?
why a rate that includes fees runs higher than the interest rate, as in this calculator's real rate
- Consumer Financial Protection Bureau (CFPB) — What Is Amortization and How Could It Affect My Auto Loan?
each payment on an amortized loan is split between interest and principal, with more going to interest early on, as shown in this calculator's amortization schedule
- 12 CFR Part 1026 (Regulation Z), Appendix J — Annual Percentage Rate Computations for Closed-End Credit Transactions
the actuarial method behind the payment schedule and the real rate: each period's interest is added to the balance and each payment subtracted, and the rate is the one at which the payments equal the amount received
- Valerie Watts, Business and Financial Mathematics, 4.7 Effective and Equivalent Interest Rates
converting a rate from its compounding frequency to an equivalent rate per payment period
- U.S. Small Business Administration, 7(a) Terms, Conditions and Eligibility
SBA loan channels, 7(a) rates negotiated up to SBA maximums and either fixed or variable, and the upfront guaranty fee lenders may pass on to borrowers