Business Loan Calculator

What This Calculator Does

The Business Loan Calculator helps you estimate your monthly loan payments and assess your financial readiness for business borrowing. By analyzing your loan details and business finances, this calculator provides a clear picture of your debt service obligations and how they relate to your company’s revenue and expenses. Use this tool to compare financing options and make informed, confident decisions about your business growth.

How to Use This Calculator

1. Enter the desired Loan Amount you wish to borrow for your business needs.
2. Input the Annual Interest Rate offered by your lender as a percentage (for example, enter 7.5 for 7.5%).
3. Specify the Loan Term in years or months, depending on your agreement.
4. If applicable, add the Origination Fee charged by the lender, as a percentage of the loan amount.
5. Provide your business’s Annual Revenue before taxes and deductions.
6. Enter your Annual Operating Expenses, excluding loan payments.
7. Click the “Calculate” button to see your Monthly Payment and Debt Service Ratio.
8. Review the results to understand your loan costs and how easily your business can manage additional debt.

Definitions of Key Terms

Loan Amount

The total sum of money you plan to borrow from a lender to finance your business operations, purchases, or expansion.

Annual Interest Rate

The yearly percentage rate charged by your lender for borrowing the loan principal. This does not typically include fees or compounding.

Loan Term

The amount of time over which you will repay the loan, usually expressed in years or months.

Origination Fee

A one-time upfront fee charged by the lender for processing your loan application, typically calculated as a percentage of the loan amount.

Annual Revenue

The total income your business generates over a year before any expenses are deducted.

Annual Operating Expenses

The total costs your business incurs in one year to maintain daily operations. This figure excludes debt repayments and interest.

Monthly Payment

The fixed amount you must pay each month to repay the loan, including both principal and interest.

Debt Service Ratio

A financial metric that compares your business’s available cash flow to its debt obligations, helping lenders and owners assess the ability to handle additional debt.

Calculation Methodology

The Business Loan Calculator uses standard financial formulas to estimate monthly payments and evaluate your debt service ratio. Here’s how the calculations are performed:

Calculate Origination Fee:
Origination Fee Amount = Loan Amount x (Origination Fee / 100)

Calculate Loan Principal After Fee:
Net Loan Amount = Loan Amount - Origination Fee Amount

Calculate Monthly Interest Rate:
Monthly Rate = Annual Interest Rate / 12 / 100

Calculate Total Number of Payments:
Total Payments = Loan Term in Years x 12

Calculate Monthly Payment:
Monthly Payment = [Net Loan Amount x Monthly Rate x (1 + Monthly Rate) ^ Total Payments] / [(1 + Monthly Rate) ^ Total Payments - 1]

Calculate Debt Service Ratio:
Annual Debt Payments = Monthly Payment x 12
Net Operating Income = Annual Revenue - Annual Operating Expenses
Debt Service Ratio = Net Operating Income / Annual Debt Payments

The variables used in these formulas are based on your inputs. The origination fee reduces the amount available for your business, so the monthly payment is calculated using the net loan amount. The debt service ratio is a key indicator of your business’s ability to repay the loan based on current operating income.

Practical Scenarios

• Expanding Your Business Location: You are considering a $100,000 loan to open a new store. By entering your loan details and revenue estimates, you can see if your current operations can comfortably support the additional monthly debt payments.
• Purchasing New Equipment: Your business needs to finance $50,000 worth of machinery. Use the calculator to compare different interest rates and terms to identify the most affordable monthly payment without straining your cash flow.
• Managing Cash Flow During Seasonal Fluctuations: If your business has variable income throughout the year, estimate whether your annual revenue can cover new loan payments even during lean months, using the debt service ratio as a guide.
• Comparing Multiple Loan Offers: You have quotes from several lenders with varying interest rates and origination fees. Use the calculator to determine which option yields the lowest monthly payment and best fits your financial situation.

Advanced Tips & Best Practices

• Factor in all possible fees, including origination charges and prepayment penalties, when comparing loan offers. These can significantly affect your actual borrowing cost.
• Try adjusting loan terms and amounts to see how small changes can impact your monthly payment and debt service ratio. This helps identify a payment structure your business can handle comfortably.
• Maintain a debt service ratio above 1.25 whenever possible. Lenders prefer this threshold, as it indicates you have a healthy buffer to cover debt payments from your operating income.
• Regularly update your revenue and expense figures in the calculator to reflect your business’s current financial situation, especially before applying for a loan.
• Use the calculator’s results to prepare for lender discussions. Demonstrating a clear understanding of your payment obligations and financial metrics can strengthen your loan application.

Frequently Asked Questions (Optional)

What is a good debt service ratio for a business loan?

A debt service ratio of 1.25 or higher is typically considered healthy. This means your business generates at least 25% more income than required to cover its annual debt payments, providing a safety margin for unforeseen expenses or revenue shortfalls.

Does the calculator account for variable interest rates?

This calculator assumes a fixed interest rate over the life of the loan. If your loan has a variable rate, use the current rate for your calculation, but be aware that future payments may change as rates adjust.

Why is my origination fee subtracted from the loan amount?

The origination fee is typically deducted upfront by the lender, reducing the actual funds you receive. The calculator uses the net amount to provide a more accurate estimate of your available funds and payment obligations.