Small Business Loan Calculator

Running a business is not only about selling well and getting profits. Along the way, owners must also handle unexpected situations that the company might face. As business owners probably know, small business loans help them get business operations and processes up and running.

Small Business Loan Calculator

Others take out small business loans for additional business capital to expand operations, fund everyday expenses, or use them during shortages in cash flow.

Regardless of the reason for taking out a business loan, you must first assess if you and your business can afford the repayments. A small business loan calculator can help you evaluate how you need to pay for the small business loan.

This article looks at how small business loan calculators work on the different kinds of small business loans, their benefits, and factors that will influence loan costs.

Types of small business loans

Before exploring the use of a small business loan calculator, it is ideal to see loan options for your small business. These loans are available through online lenders like Booster Financial, credit unions, or banks. Fees, interest rates, terms, and loan limits vary depending on the type of loan, the borrower, and the lender. As borrowers, understanding how each small business loan works is essential to selecting the best option.

Here are nine kinds of small business loans your business can benefit from.

Term Loans

These loans are one of the more common kinds of small business loans. Borrowers will receive a lump sum of money that needs repayments over a fixed term. There are fixed monthly payments with interest on top of the principal. Term loans benefit various business needs like equipment and daily business expenses.

SBA Loans

Suppose you want a low-cost partially backed by the government type of loan, you can opt for a Small Business Administration (SBA) loan. Business owners find this loan enticing. However, SBA loans are notorious for long application processes, which can possibly delay the release of the funding. It can take approximately three months to get approval and receive the money. If the money you need is not for urgent purposes and you want to get lower interest rates and fees, an SBA loan will be an ideal option.

Business Lines of Credit

A business line of credit is likened to a credit card. It provides borrowers a revolving credit limit which they can generally access using a checking account. They can spend up to the allowed maximum credit limit, repay the borrowed amount, and then withdraw additional money. This loan option is ideal if borrowers do not know the exact amount of money needed. You will only pay interest charges on the withdrawn amount, compared to term loans where the interest applies for the entire loan. Business lines of credit are generally unsecured and do not need any collateral.

Equipment loans

When you need to purchase a large piece of equipment, you can turn to equipment loans for funding. They are for businesses that need to pay for expensive machinery, equipment, or vehicles that retain value, like furniture or computers. In most circumstances, the purchased equipment will serve as collateral if you default the loan or fail to pay it off.

Invoice financing and invoice factoring

In some cases, a business struggles to receive on-time payments. Consequently, it will affect their cash flow. Luckily, your business can take out invoice factoring to sell unpaid invoices and receive a percentage of the value of the invoice upfront. Meanwhile, a company can have the unpaid invoices act as collateral to get advanced cash on the amount you are owed for invoice financing. The fundamental difference between the two is that invoice factoring allows the buying company to control collecting payments for your business’s invoices. On the other hand, you still need to collect payments to pay off the borrowed amount with invoice financing.

Commercial real estate loans

These loans are also termed commercial mortgages that help businesses finance new and existing properties such as offices, retail spaces, or warehouses. One can also liken this loan to a term loan, allowing borrowers to purchase new commercial properties, refinance existing loans, or expand a location.

Microloans

A microloan is another financing option that provides $50 000 or less business funding. Since the loan amount is relatively low, it’s an ideal option for startups or those businesses that do not need a considerable amount of cash. Nonprofits or governments like the SBA offer microloans. More importantly, even if the loan amount is lower, borrowers might still need to put collateral to qualify for the loan.

Merchant cash advances

Similar to conventional cash advances, a merchant cash advance comes at a high cost. This cash advance allows you to borrow money against your business’s future sales. In exchange for borrowed cash, borrowers have to repay it through a weekly transfer from their bank account or a portion of the business’s daily credit card sales. This loan also has higher interest rates which makes them a significant risk. Merchant cash advances utilize credit card sales to act as collateral.

Franchise loans

Franchising can also help achieve your business ownership goal easier and faster than starting your own from the ground up. Furthermore, a franchise loan provides you with the money to pay upfront for opening a franchise. In most cases, you will be the one taking out the franchise loan through a lender. However, some franchisors offer to fund potential franchisees.

Lender requirements for a small business loan

Requirements to get a small business loan will vary depending on the lender and the type of loan you will get. Regardless, here is a list of the essential documents lenders might need from you before qualifying for that small business loan.

ID proof and address

These documents will provide the lender with clear information about the borrower’s company finances for a particular financial year.

Bank statement of the borrower’s business

The bank statements will verify and confirm the business’ income and outgoings.

VAT returns

Some lenders may ask for VAT returns which are generally updated and available every three months.

Working capital

This means the available money a business uses to fund everyday operations.

Collateral

This is an asset that lenders can seize if borrowers default on the loan or fail to pay off the loan. While not all lenders and loan types require collateral, it can be beneficial to be ready in case.

Credit score

Lenders will assess one reliability as a debtor by looking at the credit score. Generally, the borrower’s credit score should have at least 600s to qualify for most financing services. However, there are also lenders you can approve loans for borrowers with a credit score of as low as 500.

Credit score

Lenders will assess one reliability as a debtor by looking at the credit score. Generally, the borrower’s credit score should have at least 600s to qualify for most financing services. However, there are also lenders you can approve loans for borrowers with a credit score of as low as 500.

Cash flow

The document will show when the cash goes out when the money is collected, and the remaining balances after settling everything. Lenders will need this information to assess how specific the business’s understanding of financial operations is.

What is a small business loan calculator?

Small business loan calculators promote a quick and easy identification of how many potential loans will cost a borrower. It is an excellent tool for comparing various loans available for one’s business. Booster Financial provides an online loan calculator so potential borrowers can initially determine loan costs before applying for one.

They simplify the borrower’s loan search and help them create intelligent decisions that save them hundreds of dollars along the loan process.

How to use the small business loan calculator?

As lenders vary in how they create loan requirements and other loan terms, every small business loan calculator is different. However, most of these calculators from lenders will require you to input almost the same data. Before using small business loan calculators, it is beneficial to gather the following information:

• Interest rate
• Loan amount
• The amount of time on repayments or the loan terms
• Extra monthly amount of the loan payment

Once you have all this information, input them into the calculator and let the application calculate the loan cost. There will be instances where you might not have all the information mentioned above. You can still use the calculator as it is also designed to provide estimates but not the exact loan cost. After applying, lenders will give the actual cost, get the approval, and receive the final loan amount.

Also, a small business loan calculator is beneficial in getting a rough idea of how various terms, rates, and payments can affect the total cost of the loan. It makes it easier for borrowers to decide among the loans as the calculator will highlight better deals.

How to maximize the use of small business loan calculators?

As has been previously mentioned, small business loan calculators show you the loan cost (principal and interest). Seeing firsthand how the repayments will look before actually getting the loan is beneficial. With this, you can set proper expectations on how much it will cost you and your business in the long run.

A small business loan calculator will provide you with several helpful information. Furthermore, these pieces of information allow you to have smarter and more informed decisions before taking out a loan. In fact, the calculator will also provide you with the following:

• Estimated monthly payments
• The total amount of the loan payback
• Interest vs. principal amount for every payment
• Percentage of the total repayment which goes to the principal vs. interest

Choose between loans with longer repayment terms and lower interest rates (for example, ten years and 5%) and loans with shorter repayments and highest interests (say seven years and 8%). Loan calculators will help you decide which to choose. You can either opt for a lower monthly payment or lower payoff amounts.

The calculator can also identify whether the monthly loan payment fits your business budget. Furthermore, it can evaluate if it is worth looking for better interest rates. Of course, one needs to remember that small business loan calculators only provide estimates. It is ideal for borrowers to confirm with lenders on actual numbers before committing to the loan.

Regardless, the calculator will ultimately give information to help borrowers decide on the best loan option for their businesses.

Factors affecting loan amounts

Sure, you trust small business loan calculators to do the math for you. However, it is also essential to be familiar with the relevant factors influencing the total loan costs.

Loan amount

One of the most significant aspects of a borrower’s total loan cost is the loan amount. Considerably a $500 000 loan amount will cost you more than opting for a $10 000 loan. Besides the principal amount, lenders usually calculate the interest rates and fees as percentages of the total loan amount.

Suppose the interest rates and fees are about 10% of the principal amount; a $100 000 loan amount will cost about $10 000 in fees. Meanwhile $50 000 loan amount will accumulate to around $5 000 in fees. Therefore, in applying for small business loans, ensure that you apply for the right loan size. Remember that a bigger loan always comes with higher rates and fees.

Interest rates

To illustrate how interest rates affect loan costs, think of a five-year, $50 000 loan option. Considering a 6% interest rate, you will have a monthly repayment of $966.64, which leads to a total loan cost of $57 998.40. Additionally, if the interest rate becomes 12%, the monthly payment would be $1 112.22 with a total loan cost of $66 733.34. You can see it for yourself using a small business loan calculator.

Consequently, if you opt for lower loan costs, one of the obvious solutions is to lower the interest rate. However, that will be a handful, and lowering interest rates might not be up to the borrower alone. The loan size, credit score, term length, business revenue, and cash income are some variables that influence the interest rate. In general, a company with better business health and credit history favorably gets a lower interest rate.

Also, you might come across various interest rate types, including:

• APR, or the Annual Percentage rate, serves as a compound annual interest fee like closing costs and origination fee.
• AIR or the Annual Interest Rate, which are yearly compounding interest that does not include the loan fee
• The factor rate is a decimal figure showing the principal amount multiplied by the overall cost of financing.

Fees

In most cases, lenders will implement fees when you take out a loan. These fees vary depending on the lender, but here are some common fees you might encounter.

• Processing fee
• Origination fee/li>
• Insufficient funds fee
• Late fee

For example, a borrower might incur an origination fee, a packaging fee, or a processing fee. These can be flat fees or percentages of the loan amount. It will depend on the lender. Also, remember that most lenders take the cost of loan fees out of the principal. If they approve a $10 000 loan, the borrower only gets $9 500. If this happens, the fees will not affect the total amount of repayment for the loan. However, not all lenders practice this, so it is ideal for borrowers to ask about charges and fees before committing to the loan.

In some cases, there are fees that will come after the borrower pays back the loan. There might be late payment fees, and some charge prepayment penalties for early payments.

Loan term

The length of the loan term shows how long the borrower can repay the debt in full. Terms can last a few months to years. It will depend on the lender and the loan type. The SBA loan usually has the most extended maximum loan terms, ranging from 10 to 25 years. Additionally, the terms can be as long as ten years for traditional bank loans.

Loans from online lenders generally have the shortest loan terms. Borrowers might need to repay the debt within three months. Furthermore, these loans typically come with higher interest rates. Remember that borrowers might have a shorter timeline to repay the loan and interest. If this happens, it can increase the number of monthly payments.

Small business loan calculator benefits

Small business loan calculators provide more than just convenience for potential borrowers. Here are a few of the tool’s benefits.

Precise calculations

Indeed you can calculate the loan amount manually. However, it will not be as fast and precise as an online calculator, and the chances of errors might relatively be higher. Using small business loan calculators helps you accurately determine interest rates, monthly payments, and the principal amount. There will be some differences between the result of the calculation and the actual loan cost from the lender. However, the small business loan calculator is the easiest way to get an overview of how the loan cost before actually applying for a loan.

Also, when using the tool, you can modify the desired amount by replacing loan terms, loan amounts, and interest rates. Moreover, when dealing with loans, you can’t afford to go wrong with numbers.

Decides the borrower’s eligibility

As you may already know, small business loan calculators will need your credit score and income. Through this, the tool can identify whether you are eligible for the loan or not. Furthermore, it will also save you time and energy if you can determine your eligibility quickly.

It is quick and easy to use

Besides being prone to errors, the process of calculating manually is strenuous and prolonged. Consequently, this will lead to some faults in calculations. Using these calculators allows borrowers to come up with numbers in just minutes. Given that you have all the necessary details, you can trust the calculator to do the job for you conveniently.

Furthermore, the calculator enables users to quickly keep a comprehensive running record for loan payments. It also helps in outlining business finances. More importantly, since you can determine your repayments, you can easily define loan amounts that meet the business’s needs. At the same time, it gives you the opportunity to figure out ideal loan amounts for the business’s financial capacity.

Easily compare offers

Loan calculators are significantly helpful to first-time loan applicants. They help you decide whether to accept the proposed loan terms or shop for another lender. Remember that as applicants, you can either take the loan offer or hear more options from another lender.

Furthermore, it is an excellent idea to shop and compare since every lender has various means and styles of lending money. Using the loan calculator, all you need to do is input all the necessary details of the loan and determine whether the monthly repayment is achievable. If you think it will not work, you can find another lender who best fits you and your business needs.

Mobile friendly

In most cases, a small business loan calculator is accessible online. This means that you can use the calculator anytime you want. Moreover, most people today carry mobile phones with them as they are handy compared to computers. They mostly do online activities and transactions using mobile phones. The same goes for Booster Financial. You can browse the website to the loan calculator and start providing necessary loan details and assess your eligibility.

How to reduce the loan costs?

Probably one of the most significant benefits of loan calculators is that borrowers can estimate how much a type of loan could cost. While having this quick appraisal is helpful, there are still several ways for borrowers to reduce loan costs before finalizing them.

Ensure to make on-time minimum payments

Like any other bill, it is essential to adhere to the minimum payments schedule. Paying on time makes your life easier and benefits your credit score. One of the most recommendable ways to stick to payment schedules is to set calendar alarms and reminders on your mobile phone. Furthermore, you can also set up your accounts for automatic payments.

Inquire about prepayments and discounts

As you have learned, some financing companies and lenders impose fees for all early prepayments. However, you must take note that not all of them do. The best way to check how your chosen lender works and implements loan processes. You can simply ask them whether they offer any prepayment options and discounts to reduce the repayment costs.

Use prized collateral

Using additional or more valuable collateral helps decrease interest rates. Consequently, it will also reduce the loan’s overall cost. Business equipment, cars, homes, and other real estate are valuables usually used as collateral.

Evaluating the best financing option for you

Loan costs are obviously an essential element you need to consider. However, it’s just one of the many factors you must consider. Indeed, using a small business loan calculator helps you finalize all initial cost estimates, but there are a few more tangibles you need to recognize.

Customer service and reputation

Prior to finalizing and committing to a loan, a borrower needs to review two or more lenders. Regardless of whether their products and offers are the same or not, reading reviews will supply you with a much clearer idea of their reputation as a financing service company.

Collateral requirement

Providing collateral surely will lower your total repayment costs. However, you need to remember that you also risk losing some assets in case you default on the loan. As you shop and assess every lender, note who among them asks for collateral and trusts you that much not to ask for any collateral.

Besides collateral, there are also lenders like Booster Financial who will only ask for your business performances and revenue. Regardless of your credit score, they can approve small business loans for you. You can guarantee a faster, more reliable, and straightforward loan application process.

Penalties on prepayments

Like collateral requirements, it’s also an ideal choice for borrowers to turn to lenders who do not charge clients for wanting to pay off loans earlier than what has been agreed upon. If these factors significantly concern you, ensure to research and ask the lenders to be concise about early payoff policies.

Tips for growing your small business

• Before finding and choosing a lender, it might be beneficial to formulate a business budget plan. Generally, lenders will ask for a comprehensive budget detail before granting loans. Once you complete the budget plan, you can already shop for financing companies. More importantly, find the best lender which satisfies your business’s budget with favorable and reasonable loan terms and conditions.
• When you do business, you are generally not required to know everything all at once. You can hire a bookkeeper or an accountant to record and analyze the business’s financial transactions. Doing something you don’t know anything about leads to wasting your resources and energy in the long run.
• The economic status is unpredictable. One day it will bring positive effects, and the next day your business might face negative impacts. This is why one needs to consider calculated risks. Study them and assess the possible worst-case scenarios. This way, your business will come prepared in case the worst happens.

FAQs

Is there a benefit if I pay off the loan early?

Yes. You relatively save in terms of the total interest costs. Every month a borrower pays a particular amount in interest. In cases where they decide to pay off the loan early, it also means cutting off interests for months or years.

On the contrary, there are also circumstances where it won’t make sense to pay off the loan early. For instance, suppose you expand your business and need funding to invest in new equipment, technology, or workforce, then spreading out the cost through a loan is beneficial. This way, your business can afford the investment without disrupting the daily cash flow.

Does a small business loan implement prepayment penalties?

Loans intended for small businesses do not come with prepayment penalties, except for SBA loans. However, remember that it will always depend on the lender whether they impose such penalties or not. Ensure you confirm with them before getting the loan.

How long does it take to pay off a small business loan?

It will always depend on your loan term, credit history, and whether the loan is secured or unsecured. You can also use loan calculators to look for a repayment figure you are most comfortable with. Moreover, you can identify what kind of affordability and time frame works best for your business.

How much is the average interest rate for small business loans?

Lenders who provide small business loans usually put up an interest rate ranging from 5% to over 20%. Every lender has its own set of rates, and interest can vary depending on the loan type, market factors, and the economy.

What is the typical length of a small business loan?

Small business loans can either last for about a few months or up to thirty years. SBA loans and commercial estate loans tend to have longer loan terms which fall between 5 and 25 years. Meanwhile, term loans and vehicle loans can run from two to five years. Also, cash advances and other financing alternatives typically have the shortest term, which usually takes just a few months.

Are principal and interest different?

Yes. The principal is the loan amount borrowed. Also, the principal balance refers to the remaining amount of the loan you owe from the lender. Meanwhile, interest means the rate you are paying the lender for the use of money owed.

Why do loan balances reduce slowly at the start of the loan term?

During the start of the loan period, the borrower’s payments generally go to the interest and less towards reducing the principal. However, as time goes on, more payments go to reducing the outstanding principal balance and much less to the loan interest. Furthermore, the total monthly due does not change, and the rates. The only element that changes is the proportion of payments towards the interest and principal.