A commercial loan is financing obtained by a business for various operational needs, such as expansion, equipment purchase, working capital, or real estate acquisition. The monthly payment for a commercial loan is typically calculated using an amortization formula, similar to residential mortgages, but tailored for business contexts. This calculator helps businesses estimate their regular payment obligations, which is crucial for financial planning and budgeting.
The Amortization Formula Explained
The standard formula for calculating the monthly payment (M) of an amortizing loan is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = Principal loan amount (the total amount borrowed)
i = Monthly interest rate (Annual interest rate divided by 12)
n = Total number of payments (Loan term in years multiplied by 12)
Breakdown of the Calculation:
Monthly Interest Rate (i): The annual interest rate is divided by 100 to convert it to a decimal, and then by 12 to get the monthly rate. For example, a 7.5% annual rate becomes 0.075 / 12 = 0.00625.
Total Number of Payments (n): The loan term in years is multiplied by 12 to determine the total number of monthly payments over the life of the loan. A 15-year loan has 15 * 12 = 180 payments.
Calculating the Payment: The formula then uses these values to determine a fixed monthly payment that covers both the principal and the interest over the loan's life. The portion of the payment attributed to principal and interest changes each month, but the total payment amount remains constant.
Loan Comparison: Quickly compare different loan offers by seeing how varying terms and rates affect monthly payments.
Budgeting: Incorporate loan repayment costs into your business budget with confidence.
Negotiation: Understand the impact of interest rates and loan terms when negotiating with lenders.
Example Scenario:
Let's say a small business needs a commercial loan for new equipment.
Loan Amount (P): $150,000
Annual Interest Rate: 8.0%
Loan Term: 10 Years
Using the calculator or the formula:
Monthly Interest Rate (i) = 0.08 / 12 ≈ 0.006667
Total Number of Payments (n) = 10 * 12 = 120
The estimated monthly payment would be approximately $1,751.23. This figure represents the consistent amount the business would need to allocate each month to repay the loan fully over 10 years.
function calculatePayment() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var resultSpan = document.querySelector("#result span");
if (isNaN(loanAmount) || isNaN(interestRate) || isNaN(loanTermYears) || loanAmount <= 0 || interestRate < 0 || loanTermYears <= 0) {
resultSpan.textContent = "Invalid input. Please enter valid positive numbers.";
resultSpan.style.color = "#dc3545";
return;
}
var monthlyInterestRate = interestRate / 100 / 12;
var numberOfPayments = loanTermYears * 12;
var monthlyPayment;
if (monthlyInterestRate === 0) {
monthlyPayment = loanAmount / numberOfPayments;
} else {
monthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
}
resultSpan.textContent = "$" + monthlyPayment.toFixed(2);
resultSpan.style.color = "#28a745";
}