Calculating the true cost of a business loan is vital for maintaining healthy cash flow. Unlike personal loans, business loans often come with specific fees like origination fees and closing costs that increase the effective APR (Annual Percentage Rate).
The Business Amortization Formula
Most commercial term loans use a standard amortization schedule. This means your monthly payment remains fixed, but the portion of the payment going toward the principal increases each month while the interest portion decreases. The formula used in this calculator is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
P: Loan Principal amount
i: Monthly interest rate (Annual rate / 12)
n: Number of monthly payments
Example Scenario
If your business borrows $50,000 at an 8.5% interest rate for 36 months with a 2% origination fee:
Monthly Payment: Approximately $1,578.
Upfront Fee: $1,000 (2% of $50,000).
Total Interest Paid: Approximately $6,821 over the life of the loan.
Total Repayment: $57,821.
Key Factors to Consider
Before signing a loan agreement, evaluate these three metrics:
Debt Service Coverage Ratio (DSCR): Can your business's net operating income cover these monthly payments?
APR vs. Interest Rate: The APR includes the origination fees and provides a more accurate view of the yearly cost.
Prepayment Penalties: Some lenders charge fees if you pay the loan back early. Always check the fine print.
function calculateBusinessLoan() {
var loanAmt = parseFloat(document.getElementById('loan_amount').value);
var annualRate = parseFloat(document.getElementById('interest_rate').value);
var months = parseInt(document.getElementById('loan_term').value);
var feePercent = parseFloat(document.getElementById('origination_fee').value);
if (isNaN(loanAmt) || isNaN(annualRate) || isNaN(months) || loanAmt <= 0) {
alert("Please enter valid positive numbers for all fields.");
return;
}
var monthlyRate = (annualRate / 100) / 12;
var monthlyPayment = 0;
if (monthlyRate === 0) {
monthlyPayment = loanAmt / months;
} else {
monthlyPayment = (loanAmt * monthlyRate * Math.pow(1 + monthlyRate, months)) / (Math.pow(1 + monthlyRate, months) – 1);
}
var totalRepayment = monthlyPayment * months;
var totalInterest = totalRepayment – loanAmt;
var originationFeeCost = (feePercent / 100) * loanAmt;
var totalCostOfCapital = totalInterest + originationFeeCost;
document.getElementById('res_monthly').innerText = "$" + monthlyPayment.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('res_interest').innerText = "$" + totalInterest.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('res_fee').innerText = "$" + originationFeeCost.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('res_total').innerText = "$" + totalCostOfCapital.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('results-area').style.display = 'block';
}