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