Business Loan Calculator

Business loan payments use the same amortization formula as any installment loan. However, business loan evaluation involves additional metrics: total interest cost, APR vs. factor rate, and the effective cost of capital.

Monthly Payment Formula:

M = P × [r(1+r)^n] / [(1+r)^n − 1]

• P = Loan principal
• r = Monthly interest rate (APR / 12)
• n = Loan term in months

Worked example, an SBA 7(a) loan: Loan amount: $150,000 APR: 10.5% Term: 7 years (84 months) Monthly rate: 0.105 / 12 = 0.00875

M = 150,000 × [0.00875 × (1.00875)^84] / [(1.00875)^84 − 1] = 150,000 × [0.00875 × 2.076] / [2.076 − 1] = 150,000 × 0.01817 / 1.076 = $2,532/month

Total paid: $2,532 × 84 = $212,688 Total interest: $212,688 − $150,000 = $62,688

Factor rate vs. APR (merchant cash advances): Some short-term lenders use a “factor rate” instead of APR: Total Repayment = Loan Amount × Factor Rate

Example: $50,000 loan × 1.35 factor rate = $67,500 total repayment If repaid in 6 months, the effective APR works out at 70% or more, far higher than it looks on the quote

Key business loan metrics:

• Debt Service Coverage Ratio (DSCR) = Net Operating Income / Annual Debt Service. Lenders want to see 1.25 or better
• Loan-to-Value (LTV) for secured loans: typically 70–80% maximum
• Origination fees: 1–3% of loan, often deducted from disbursement

Always compare loans using APR, not just stated interest rate or factor rate.

Why an origination fee raises the APR

A 2% fee on the $150,000 loan above means $3,000 comes off the top and only $147,000 reaches your account. You still pay interest on the whole $150,000. That gap is exactly what an APR measures: the true APR here is about 11.3%, not the 10.5% on the paperwork.

Beware of any calculator, this one included in an earlier version, that works out an “effective rate” by dividing total interest by the original loan amount and then by the number of years. That method ignores the fact that you are only holding the full balance in month one and almost none of it by the end, and it produces a figure well below the stated rate, which fees can never do. If a cost measure comes out lower than the interest rate on a loan that also charges fees, the measure is broken.