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Updated Dec 15, 2023

# Loan Payment Calculator

Written By: Nicole FallonSenior Analyst & Expert on Business Ownership
Editor Verified
Editor Verified
A business.com editor verified this analysis to ensure it meets our standards for accuracy, expertise and integrity.

If you’re considering applying for a business loan, we recommend using our loan payment calculator to evaluate what funding amount you can afford to take out and repay. This handy tool can help you estimate what your monthly loan payment would be based on the potential loan amount, term and interest rate. Read on to learn how to use this calculator effectively and how certain factors affect loan approvals and interest rates.

## Key terms when using the loan payment calculator

When using our loan payment calculator, it’s essential to understand these key terms:

• Loan amount: The principal amount you want to borrow
• Term of loan The number of months over which you plan to repay the loan, from 1 to 360
• Annual interest rate: The annual interest rate charged by the lender, from 0 to 40%
• Payment: The amount you’ll pay each month to repay the loan
• Balance: The amount remaining after each monthly payment
• Interest: The amount you’ll pay in interest over the life of the loan

## What determines the monthly loan payment on a business loan?

The monthly loan payment on a business loan is determined by a formula that takes into account the loan amount, interest rate and loan term. The formula considers both the principal (the amount you borrowed) and interest, spreading the total repayment over the loan term to determine your monthly payment amount. While exact loan repayment terms can vary by lender, you can use the above loan payment calculator to get an estimate of your monthly loan payment based on a specific amount borrowed.

## What determines whether someone is likely to be approved for a business loan?

Lenders consider several factors when determining whether to approve someone for a business loan. These criteria include your credit score, business financials (including cash flow) and collateral. Lenders will also look at your debt service coverage ratio, which compares net cash flow to mortgage debt service, and the loan-to-value ratio; both are critical factors in determining loan eligibility and interest rates.

The documentation required when applying for one of the best business loans typically includes income statements from a business bank account, tax returns, financial statements, corporate documents, asset statements, leases and the business owner’s personal financial records. Lenders conduct rigorous due diligence to evaluate the risk in approving you for a loan.

## What is the average interest rate on a business loan?

The interest rate on a business loan can vary widely depending on factors like the lender, the type of loan and your creditworthiness.

Data from the Federal Reserve Bank of Kansas City shows that small business loans in Q1 2023 had a median initial interest rate of 7% for fixed-rate loans and 7.9% for variable-rate loans. It’s worth noting many lenders don’t disclose the top of their interest rate range. Additionally, applicants with lower credit scores may face significantly higher interest rates. Average rates can also change over time depending on the federal interest rate.

It’s also crucial to understand that business loans may come with various types of interest rates. An APR (annual percentage rate) is a commonly used measurement that factors in any additional fees on top of the regular interest. However, some lenders may opt for a general interest rate or a factor rate, which typically excludes fees from the calculation.

Written By: Nicole FallonSenior Analyst & Expert on Business Ownership
Nicole Fallon brings a wealth of entrepreneurial experience to business.com with nearly a decade at the helm of her own small business. She and her co-founder successfully bootstrapped their venture and now oversee a dedicated team. Fallon's journey as a business owner enables her to provide invaluable insights into the intricacies of the startup process and beyond, along with guidance in financial management, workplace dynamics, sales and marketing, and more. Beyond her personal entrepreneurial endeavors, Fallon is skilled at offering macro-level analysis of small business trends as a contributor to the U.S. Chamber of Commerce. Her observations have also been published in Newsweek, Entrepreneur and Forbes, showing she's a trusted voice in the business world. Fallon's collaborative spirit extends to partnerships with B2B and SaaS companies, where she lends her expertise to drive innovation and sustainable growth. Her multifaceted experiences converge to offer a holistic perspective that resonates with budding entrepreneurs and industry leaders alike.