Business loan calculator

How a business loan repayment is calculated

A standard amortising loan spreads principal and interest across regular payments. The main inputs are the amount borrowed, annual interest rate, term and payment frequency.

Each payment initially contains more interest; the interest share falls as the balance is repaid.

Some commercial loans use flat-rate pricing, interest-only periods, balloon payments or fees charged outside the loan.

A calculator based on a conventional reducing balance will not reproduce those structures, so ask the lender for a repayment schedule and total amount repayable.

Interest rate, APR and fees

The nominal interest rate describes the cost of interest but may exclude arrangement, documentation, broker, legal or valuation fees.

APR can help with comparison when it is provided on a consistent basis, although APR disclosure does not apply to every business facility.

Check whether fees are deducted from the advance. If a £50,000 facility deducts a fee before payout, the business receives less than £50,000 but may still pay interest and repay based on the contractual balance.

What changing the term does

A longer term normally reduces each payment but keeps the balance outstanding for longer, increasing total interest when other assumptions stay the same.

A shorter term creates larger payments and can reduce total interest, but only if those payments remain affordable in weak months.

Match term to purpose. Avoid funding short-lived stock over many years or forcing long-life equipment into a repayment schedule that drains working capital too quickly.

Stress-test business loan affordability

Run at least three cases: expected trading, a sales slowdown and a cost increase. Include VAT, corporation or income tax, payroll, rent, energy, existing debt and owner drawings or dividends.

Seasonal firms should calculate the lowest cash point rather than rely on an annual average.

For a variable-rate loan, model a higher rate. For growth funding, delay the expected revenue and increase the planned cost.

If a modest change causes a cash shortfall, reduce the borrowing, lengthen the term, stage the project or reconsider the funding type.

Compare calculator results with a real quote

Request the advance paid to the business, payment amount and frequency, number of payments, all fees, total amount repayable, security, guarantee and early settlement terms. Enter the same amount and term for every provider.

A cheaper estimate is not automatically a better facility. Flexibility, reporting, speed, security and the consequences of a missed payment can be more important than a small difference in interest.

Formula and limitations

For a conventional loan with equal monthly payments, the payment is derived from the principal, monthly interest rate and number of payments. If the rate is zero, the principal is simply divided by the number of payments.

This is general planning information, not a quotation or credit decision. Tax treatment depends on the finance and the business, so obtain accounting advice where it could affect the comparison.