How To Calculate Business Loan Payments

While a business loan is a quick capital injection for your business, the costs associated with borrowing funds over time may not pay off in the end. That’s why it’s important to understand how to calculate business loan payments to determine if the return on investment will help — not hurt — your business.

Here’s how to calculate your monthly business loan payment so you’ll know exactly what to expect after receiving your funds.

What To Consider Before Getting A Business Loan

Before applying for a small business loan, you need to make sure that your business is in a financial position to take on debt. Ask yourself the following questions:

• What problems would be solved by taking out a business loan?
• Are there other ways to solve those problems?
• Can you cut expenses elsewhere to solve those problems without requiring outside funding?

Additionally, you should carefully consider the short- and long-term goals of your business. Evaluate (or create) your business plan and determine if a loan fits within that plan.

What You Need To Calculate Your Business Loan Payment

If a business loan still seems like a solid financial option for your business, you can move into calculating your monthly business loan payment. This will further help you decide if getting a loan will help boost the growth of your business.

To calculate your business loan payment, you’ll need to know:

• The interest rate for the loan
• Additional fees charged by the lender
• The amount you plan to borrow
• The length of the repayment period

These vary by loan type and lender, so make sure you do your research to ensure the numbers are correct so you can accurately calculate your loan payment.

How To Calculate A Monthly Business Loan Payment

Here are the steps you need to take to calculate your monthly business loan payment.

How To Use Effective APR To Calculate Your Business Loan Payments

Keep in mind that using APR to calculate monthly business loan payments only works for traditional long-term loans. It won’t work if you’re trying to calculate the monthly payment for:

• Loans with variable interest rates
• Loans with hidden fees
• Loans that you refinance or prepay
• Merchant cash advances
• Short-term loans

Effective APR — an estimated APR — can be used to calculate the cost of merchant cash advances and short-term loans. While you can calculate this yourself, our calculators make this task simple, so you can quickly figure out the cost of your loan payments and compare options.

Keep in mind that these forms of funding are going to come with much higher APRs than long-term traditional loans.

The Bottom Line On Calculating Business Loan Payments

Unfortunately, there isn’t a perfect way to calculate your estimated monthly payments for a small business loan. There are too many factors that influence the cost of a loan, so an estimate is about as good as it gets.

Your best bet is to ask any potential lender to disclose all hidden fees, the interest rate you would receive, the APR of the loan, and the length of the repayment timeline. Once you have that information, you can reasonably estimate your monthly payments.

Don’t forget to consider additional fees not added to the cost of your loan and prepayment penalties that can increase the cost of borrowing. Do your research, and make sure that your business can afford to take on a monthly payment before submitting a loan application.