How to Use Our Business Loan Calculator
To get an accurate estimate of your loan payments, you’ll need a few key pieces of information. Here’s a simple breakdown of each input field.
Loan Amount: Enter the total amount of money you plan to borrow for your business.
Annual Interest Rate (%): This is the yearly interest rate your lender charges you. It’s the primary cost of borrowing the money, expressed as a percentage.
Loan Term: The total length of time you have to repay the loan. You can enter the term in either years or months. Longer terms mean lower monthly payments but more interest paid over the life of the loan.
Loan Origination Fee (%): This is an optional, one-time fee some lenders charge upfront for processing your loan application. It’s typically a percentage of the total loan amount. If your loan offer doesn’t include this fee, you can leave this field at 0.
Understanding Your Results
Your result isn’t just one number; it’s a complete picture of what your loan will cost. Here’s how to interpret the output from the calculator.
Your Estimated Monthly Payment: This is the fixed amount you will pay the lender every month until the loan is fully paid off.
This monthly payment is made up of two parts that change over time:
Principal: The portion of your payment that goes toward paying down your original loan balance. Early in your loan, a smaller portion of your payment is principal.
Interest: The portion of your payment that goes toward paying the lender for the service of borrowing money. Early in your loan, a larger portion of your payment is interest.
The calculator also shows you two critical totals to help you assess the loan’s true cost:
Total Principal Paid: This will be equal to your original loan amount.
Total Interest Paid: This is the total profit the lender makes from your loan. It represents the true cost of borrowing over the entire term. A key goal for any borrower is to minimize this number.
Total Cost: This is the sum of the principal and all interest payments you’ll make over the life of the loan.
Example Loan Breakdown
Let’s say you borrow $100,000 at an 8% annual interest rate for 10 years (120 months).
Loan Amortization Over Time
Your loan payments stay the same, but the portion going to principal vs. interest changes each month. This is called amortization.
(A simple line chart would be embedded here showing two lines over the loan term: one for the remaining loan balance (decreasing) and one for total interest paid (increasing).)
As you can see in the chart, your payments at the beginning of the loan are mostly interest. As you continue to make payments, more and more of your money goes toward paying down the principal balance.
Frequently Asked Questions
What is the difference between an interest rate and APR?
This is an excellent question and a common point of confusion.
The Interest Rate is the cost of borrowing the principal loan amount, expressed as a percentage.
The Annual Percentage Rate (APR) is a broader measure of the loan’s cost. It includes the interest rate plus any other fees, such as loan origination fees, closing costs, or administrative fees.
Why it matters: APR gives you a more accurate, “apples-to-apples” comparison of different loan offers. A loan with a lower interest rate but a high origination fee might have a higher APR (and be more expensive) than a loan with a slightly higher interest rate but no fees. Always compare loans using the APR.
What is a good interest rate for a business loan?
There is no single “good” rate, as it depends heavily on the type of loan, the lender, and your business’s financial health. Here are some general ranges you might encounter in mid-2025:
Your specific rate will be determined by your credit score (both personal and business), time in business, annual revenue, and overall profitability.
Should I choose a short-term or a long-term loan?
Choosing the right loan term is a strategic decision that balances monthly cash flow with total cost.
Short-Term Loan (e.g., 1-3 years):
Pros: You pay significantly less total interest over the life of the loan. You get out of debt faster.
Cons: Monthly payments are much higher, which can strain your cash flow.
Long-Term Loan (e.g., 5-10 years):
Pros: Monthly payments are lower and more manageable, freeing up cash for other business operations.
Cons: You will pay substantially more in total interest. The total cost of the loan is much higher.
Concrete Example: A $50,000 loan at 9% interest.
3-Year Term: Monthly payment is $1,590. Total interest paid is $7,240.
7-Year Term: Monthly payment is $807. Total interest paid is $17,788.
The 7-year loan has a payment that’s nearly half, but you pay over $10,000 more in interest. The best choice depends on whether you can comfortably afford the higher payment of the shorter-term loan.
Can I pay my business loan off early? Are there prepayment penalties?
Most modern loans allow you to make extra payments or pay the loan off entirely before the term ends. This is a great way to save money on total interest.
However, you must check your loan agreement for a “prepayment penalty.” This is a fee some lenders charge if you pay the loan off ahead of schedule. They do this to compensate for the interest income they will lose. Always ask your lender directly: “Is there a prepayment penalty on this loan?” before you sign.
What are the main types of business loans available?
This calculator is great for standard term loans, but there are several other types of financing. Understanding them can help you find the right fit.
Term Loans: What most people think of as a “loan.” You borrow a lump sum and pay it back in fixed installments over a set period. Great for large, one-time investments like expansion or major equipment purchases.
SBA Loans: Loans partially guaranteed by the U.S. Small Business Administration. They have favorable rates and terms but a lengthy application process.
Business Line of Credit: A flexible credit line you can draw from as needed, up to a certain limit. You only pay interest on the amount you use. Excellent for managing cash flow gaps or unexpected expenses.
Equipment Financing: A loan used specifically to purchase business equipment. The equipment itself typically serves as collateral for the loan.
Plan Your Next Financial Move
Now that you’ve estimated your loan payments, see how they impact your company’s financial health with our Profit Margin Calculator. If you’re just starting out, map out your initial expenses with our Startup Cost Calculator.
