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A business loan provides the necessary financing that business owners can use for day-to-day operations, working capital, purchasing equipment or inventory, and paying off other debts. Business loans come with various Annual Percentage Rates (APRs), loan amounts and terms, which together translate into monthly payments of varying sizes.
Comparing these rates and terms can be difficult to sort through, especially if it is complex to calculate the numbers. Our simple business loan calculator can help you estimate your monthly payments and help you make sound business decisions.
How to use this business loan calculator
To use this business loan calculator, enter the amount you will need to borrow, the interest rate, and the term (in months). Then click Submit to see your estimated monthly payment and the total interest paid over the life of the loan.
Use the calculator to determine if you can afford the business loan you are considering, or if you may need to find a cheaper option.
Business loan calculator
How to get a business loan
Follow these five steps to get a business loan:
- Check your eligibility. You will want to know your personal credit score, your time in business, and your annual income when you apply for a business loan. Traditional banks and US Small Business Administration (SBA) approved lenders will typically require scores of at least 670; online banks may have more flexible requirements. And many lenders require that you have been in business for at least a year or two and have an annual income of $ 50,000 to $ 250,000.
- Determine what you need funding for. Most lenders will want to know the purpose of your loan. If you get a business loan, chances are you want the funds to start your business, finance your day-to-day operations, or expand your current business. Your desired goal will direct you to the best loan product, such as an SBA loan, term loan, line of credit, invoice factoring, or merchant cash advance.
- Compare business loan options. You have several options for choosing a lender: you can choose a traditional lender, such as a bank or credit union, or an online lender. Traditional lenders generally have more eligibility criteria, but often have more affordable offers. Online lenders generally have more flexible requirements and faster funding times, but with that comes more expensive options.
- Gather the required documentation. Before applying, check with your lender to learn more about the required documents. Preparing these documents in advance can make the process more transparent. You will likely need to provide tax returns and bank statements, company financial statements, business legal documents, and your business plan.
- Submit your application. Once you have settled your documents, it is time to submit your loan application which offers you the best possible terms for your specific situation. The time it takes to find out if you’ve been approved will vary depending on the lender and the specific loan product, such as an SBA loan or a commercial line of credit.
APR for commercial loans
APRs on business loans from banks or credit unions typically start at 3%, but can go up to 11%. However, online lenders can have rates ranging from 7% to over 100%, depending on the specific loan product.
APRs vary based on your credit score, the amount you borrow, the total repayment term, and factors specific to your business, such as years in business and annual income.
Related: Average rates for business loans: what will your fees be?
Common types of business loans and loan options
Business loans and lending options come in all shapes and sizes, and understanding them is critical to determining which one is best for your business. Here are the common types of financing your business can use.
The SBA guarantees loans, with loan terms and limits of up to 30 years and $ 5 million or more, to help business owners need financing to grow their businesses.
Most SBA loans come from SBA approved lenders who are backed by collateral of up to 85% of the amount borrowed. This means that if you don’t pay back your loan, the government pays the lender the guaranteed amount. However, the SBA requires a personal guarantee as collateral from anyone who owns at least 20% of a company’s shares. This means that the SBA can repossess your personal property to recoup its losses if you don’t pay it back.
The SBA offers the SBA 7 (a), 504, CAPLines, Export, Microloan and Disaster loan programs. Of these programs, 7 (a) and 504 are the most popular, but 7 (a) is the SBA’s main loan program.
Business term loans typically offer a one-time lump sum, paid off monthly, to be used for your business as you see fit. Compared to SBA loans, their terms are not as extensive, but still offer a good deal of change. For example, you will typically see loan terms and limits of up to 10 years and $ 500,000 or more.
Business owners can use term loans for a variety of purposes. For example, you can use the funds to cover working capital requirements, daily operating expenses, inventory or equipment purchases, or to pay off existing trade debt.
A business line of credit gives borrowers access to a set amount of money they can borrow from in the future, instead of providing a one-time lump sum. They are usually renewable, which means your line of credit replenishes for a set period of time (usually up to five years) as long as you make payments and don’t go over your limit.
Lenders typically offer credit terms and limits of up to five years and between $ 1,000 and $ 250,000. You can use a business line of credit to finance daily costs, short-term projects, or unexpected expenses. Think of it as a fund for rainy days.
Invoice factoring is technically not a loan, but it is a financing option. Instead of receiving a lump sum up front, businesses can sell their unpaid invoices at a reduced price to a factoring company. You will typically receive an initial advance of between 80% and 95% of your invoices and pay a factoring fee of up to 5%. The factoring company gets paid when it collects invoices from your customers, usually within 30 to 90 days.
For example, let’s say you have $ 20,000 in unpaid invoices and sell them to an invoice factoring company that agrees to buy them for $ 19,400 – $ 20,000 less a 3% factoring fee (600 $). If he offers to advance 85% of the bills after the fees, you will receive $ 16,490. The company will then collect your customers’ invoices when they are due and return the balance they owe you, which is $ 2,310 ($ 19,400 – $ 16,490 – $ 600).
Invoice factoring is generally best for businesses that have other businesses as clients. These customers typically don’t pay up front, so invoice factoring can help you receive immediate cash to help cover working capital needs, daily operating expenses, and other expenses. commercial.
Merchant cash advance
Like invoice factoring, Merchant Cash Advances (MCA) are not considered a loan. MCAs are generally best for businesses experiencing an influx of credit and debit card transactions because they allow you to borrow against your future sales.
MCA lenders offer limits ranging from $ 5,000 to $ 200,000 and can provide funds within 24 hours. However, this type of business loan comes at a high price: you can expect factor rates between 1.2 and 1.5 of your total advance. For example, if your total advance is $ 70,000 with a factoring rate of 1.4, you will owe $ 28,000 in fees ($ 70,000 x 1.4), for a total reimbursement of $ 98,000.
You can pay off your MCA in one of two ways: you can pay off based on a percentage of your average monthly sales, or you can set up daily or weekly withdrawals based on an estimate of your monthly income.
Due to the high costs that come with ACMs, they are often viewed as a risky form of financing. You should consider all of the other options before relying on an MCA.
Equipment financing helps businesses purchase the equipment and machinery needed to start and maintain their operations. You can generally use it for everything from office furniture and electronics to manufacturing equipment.
Equipment loans are secured by the equipment you buy, so the amount of a loan depends on the value of the equipment and the amount of the down payment. However, the best equipment finance companies offer terms and limits of up to 25 years and $ 1 million or more.
Commercial loan faqs
How many years can you get a business loan for?
Business loans have a range of terms ranging from three months to 25 years. The type of loan you open will determine the terms you have access to. For example, short-term loans will have shorter terms, like three to six months, and SBA loans have terms of up to 25 years.
How Much Should I Deposit for a Business Loan?
The down payment on your business loan will depend on the type of loan you are applying for. While some loans require no down payment, others require a down payment of 10-30% of your loan amount, depending on the type and purpose of the loan.
How Much Money Can I Borrow to Buy a Business?
If you are looking to buy a business, you will generally need a business acquisition loan, which ranges in size from $ 5,000 to $ 5 million.