Business Loan Calculator

The interest rate prices the money. The APR folds in the origination fee, closing costs and other mandatory charges, which is why it is the only number that compares two offers fairly. A 9% loan with a 3% origination fee on a three-year term carries an APR meaningfully above 9% — the fee is paid once but earned back over a shortened period, so its effect on APR is larger on short terms than long ones.

Merchant cash advances and some financing products quote a factor rate instead. A factor of 1.3 means total scheduled repayment of $130,000 on $100,000 advanced, before any additional charges. It is not an annual percentage rate. The equivalent annual cost depends on timing and repayment structure, so do not enter a factor rate in the interest-rate field.

Amortized loans front-load interest. In the first year of a five-year loan a large share of each payment services interest rather than principal, which is why an extra payment made early is worth far more than the same payment made in year four — it removes principal that would otherwise have accrued interest for the entire remaining term.

The catch is the prepayment clause. Some business loans carry a prepayment penalty, and some SBA-style products define it as a percentage of the balance retired early. Others charge a fixed number of months of interest. Run the extra-payment scenario in the calculator, then check the loan documents for whether the saving survives the penalty — occasionally it does not.

A personal guarantee can make you personally responsible if the business cannot repay. It does not appear in this payment calculation, but it changes the risk of the agreement. Check whether each offer requires one before comparing rates and payments.

Covenants are the other silent term. A lender may require you to maintain a minimum debt service coverage ratio, cap additional borrowing, or report financials on a schedule. Breaching a covenant can make the full balance immediately due even when every payment has been made on time.

Also check whether the rate is fixed or variable, and what index a variable rate follows. A payment that is comfortable at today's rate may not be at a rate two points higher, and that scenario is worth running here before signing rather than after.

The test is not whether you can make the payment. It is whether what you buy with the money earns more than the money costs. Equipment that adds $3,000 a month of capacity against a $1,800 payment is a straightforward yes. Borrowing to cover a shortfall with no plan for what changes is how a cash flow problem becomes a debt problem.

Term length is the lever most people set carelessly. A longer term lowers the payment and raises total interest substantially. Match the term to the useful life of what you are financing: financing three-year equipment over seven years means paying for it long after it stops earning.