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If you’re in the market for a small-business loan, knowing your monthly payments and the annual percentage rate, or APR, of the loan will help you determine the loan’s affordability.
Is your small-business loan affordable?
As a rule of thumb, the expected profits from the use of your business loan should exceed the loan’s total cost, and your business should generate enough cash flow to easily cover the loan’s monthly payments.
If you’re still looking for financing options, take our quiz to find the best one for your business.
How to use this business loan calculator
To calculate the APR, monthly payment and total interest costs of your business loan, enter in the amount of your loan, the interest rate provided by the lender, the length of the loan’s repayment period, upfront fees and monthly service fees.
Here’s a breakdown of common loan fees:
For business term loans, APR includes interest, plus any other upfront costs, such as application, origination and administrative fees.
For SBA 7(a) loans, APR also includes a guaranty fee for the part of the loan that is guaranteed by the agency. The guaranty fee, ranging from .25% to 3.75%, depends on the size of the loan and its maturity date.
Repayment terms will vary by lender and may also depend on the purpose of the loan. For example, a short-term inventory loan may only carry a three- to 12-month repayment term, while an equipment loan may have a repayment term that matches up to the expected life of the equipment (which could be five years or longer). Commercial real estate loans carry repayment terms up to 25 years.
Short-term loans will likely carry higher monthly payments and a higher APR than long-term loans, given the shorter repayment time frame.
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Monthly payment: This is the fixed amount you’ll repay each month and includes principal, interest and fees.
Total interest and fees: The total interest and fees represent what the lender is charging you for the life of the loan. If you repay early, you may be able to save on interest and fees.
Total payment: Your total payment is how much you’ll repay over the life of the loan when including all principal, interest and fees.
APR: This number represents the true annual cost of the loan and makes it easier to do an apples-to-apples comparison between products. Some lenders do not provide APR and instead give a general interest rate that does not include any fees.
APR is an especially useful tool to compare business term loans and SBA loans, which are backed by the U.S. Small Business Administration but issued by banks. Both loans typically come with monthly repayment schedules. SBA loans and some business term loans are also amortizing loans, so borrowers can repay the loan off early to save on interest. However, borrowers should still check to see if the lender charges an extra fee for paying off the loan early.
SBA loans are backed by the U.S. Small Business Administration and issued by participating lenders, mostly banks. They are coveted by small business owners because they come with low rates and flexible terms.
An online term loan is lump-sum financing repaid over a fixed period of time (3-36 months for short-term and up to 10 years for long-term).
A business line of credit provides access to flexible cash, much like a credit card. You don't pay unless you use it.
Invoice factoring lets you turn unpaid customer invoices into immediate cash by either selling your invoices outright to an invoice factoring lender that collects on them from your customers directly, or using them as collateral with an invoice financing lender that requires you to collect on your invoices to pay off your loan.
Typically unsecured, you can get a personal loan in amounts ranging from $1,000 to more than $50,000. We recommend taking a maximum of $35,000 to fund your business.
Many small-business owners use credit cards for funding. Business credit cards are best for short-term expenses. Research has shown that small businesses that rely heavily on credit card financing typically fail.
Microlenders offer small-size loans for young businesses with limited revenue and history. They typically offer loans of $50,000 or less. Some microlenders specifically work with small businesses in underrepresented communities and provide business assistance.
We recommend the following ways to finance your business:
Why we recommend
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A personal loan can be a source of startup funding because approval is typically based on your personal credit score.
NerdWallet recommends taking a maximum of $35,000 to fund your business.
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