Find Out the Cost of a Business Loan
As a new or soon-to-be business owner, you may need some extra cash to help you get your business off the ground. That’s where business loans come in.
While business loans–and other types of business financing–does cost money, it’s often worth it to have capital on-hand to invest into your growing business.
However, you do want to calculate the true cost of your business loan so you don’t take on a bigger loan than you can afford.
To determine the cost of your business loan, you’ll need to first look at your existing numbers.
FreshBooks accounting software makes it easy to identify your business revenue, profits, and expenses and determine how big of a loan you can afford to take on.
- Analyze business revenue over previous periods
- Calculate profit
- Add up your monthly and quarterly expenses
- Determine how much you can afford in loan interest and monthly fees
Small business loans can cost anywhere from $2,500 to $500,000, and interest rates can range from as low as 3% to as high as 80%.
Essentially, the cost of your business loan will depend on how much you qualify for and what type of loan you want to sign up for. Further, costs may vary between different lenders.
Therefore, the best way to find out the cost of a business loan for you is to use the free Business Loan Calculator.
This calculator factors in the total loan amount, length of loan and interest rate to determine an approximate loan cost for you. Try it out now to see how much a small business loan will cost for you.
How to Use a Business Loan Calculator
If you don’t qualify for business grants or are unwilling to give up equity in your company, then applying for a business loan is the way to go.
The good news is, you can use the Business Loan Calculator to estimate how much money you qualify for and how much your monthly payment may be. Further, you can calculate your interest rate to ensure you’ll have enough money to pay down the principal.
Here’s how to use the free Business Loan Calculator from FreshBooks:
- Enter the total amount of loan you want to borrow
- Plugin the annual interest rate (provided by your lender)
- Set the length of your loan term in years
- Click “Calculate”
The Small Business Loan Calculator will then calculate your Total Loan Borrowing Cost, Average Monthly Interest Rate, Monthly Payment, Total Interest and Number of Years it will take to pay off your loan.
How to Calculate a Business Loan
When you calculate the cost of a business loan, the interest rate is only one part of the equation.
You’ll also need to factor in the loan amount and the loan term in years or months. Including the yearly interest rate, you’ll be able to calculate how much you’re borrowing and how long you’ll be paying the loan off.
To calculate a business loan, simply enter the:
- Loan amount
- Loan term in years or months
- Annual interest rate
The free Business Loan Calculator will then calculate the results for you.
You’ll be able to see how much interest you’ll pay on your loan, how long you’ll be paying off your loan and how much your monthly payment will be.
Plus, you can select to see an amortization table that shows you a month-by-month plan leading up to your payoff date.
Calculate Your Ideal Business Loan Amount
Use the tool to increase your monthly payment amount and reduce your interest to see how much time and money you’ll save by paying off your loan faster.
- Select your preferred loan amount
- Adjust monthly payment to pay off your loan faster
- Estimate your final payoff date
- Determine your ideal business loan amount
If you’re planning on investing in your small business, the free Business Loan Calculator can help you plan for the future. You’ll get a close estimate of how much you’ll owe so you can make a smart, affordable investment.
Should You Get a Business Loan?
Many business owners need extra cash to help them get their small business or startup off the ground. That’s because the costs of starting a business can be rather front-loaded–from building a website to getting a logo designed to leasing a storefront.
If you’re not earning any revenue yet, you’ll need a way to pay for the supplies and tools you need. Applying for a small business loan is a great option if you need some extra funds to get the ball rolling.
Business loans can help you cover the costs of:
- Paying business licensing fees
- Hiring staff
- Designing your business website
- Paying for branding and marketing materials
- Investing in paid ads
- Leasing a storefront
- Ordering products from a manufacturer
In advance of your loan, use FreshBooks to invoice clients and keep your cash flow healthy.
The costs of starting your own business can add up to $500 or more. Therefore, taking out a small business loan may be a smart investment if you imagine being able to pay down the loan once your business starts turning a profit.
What is Amortization?
Amortization is an accounting term that refers to the repayment of your loan principal over time.
In the case of a small business loan, this means setting a regular payment schedule to determine how long it will take for you to pay off your loan.
In most cases, you’ll see sources refer to amortization when it comes to creating a loan repayment schedule–otherwise known as an amortization table. Each month, this table shows you your loan balance, the amount of interest charges and how much of the principal you have paid off.
Adjust Amortization with the Free Business Loan Calculator
The free Business Loan Calculator from FreshBooks lets you select your amortization schedule to help you determine how long it will take for you to pay off your entire loan.
You can adjust your monthly payment to pay off more of your loan per month, significantly cutting down on the length of your loan. You may also be able to reduce your interest rate by paying a higher monthly payment per month.
Common Business Loan Interest Rates
While your business loan interest rate is determined by your lender based on how much you qualify for and the length and amount of your loan, it’s still helpful to consider the average interest rates to set a benchmark.
The higher the interest rate, the more you are paying in fees on top of the principal amount. However, it may mean that you have more time to pay off your loan.
Common business interest rates can range from 3% APR (Annual Percentage Rate) for traditional banks to about %10 APR for SBA (Small Business Administration) loans.
Here is a breakdown of the most common business loan interest rates:
- SBA Loan: 7.5% to 10% APR
- Traditional Bank Loan: 3% to 6% APR
- Business Line of Credit: 7% to 36% APR
- Short-Term Loans (repayment period less than 1 year): 8.5% to 80% APR
- Medium-Term Loans (repayment period 2-5 years): 7% to 30% APR
- Equipment Financing: 8% to 30% APR
- Merchant Cash Advances: 40% to 150% APR
Remember, your business loan interest rate will depend on how much money you are borrowing, the length of your loan, how much you qualify for and the lender you decide to go with.
To determine an accurate interest rate, it’s best to shop around and discuss your options with trusted business lenders.
How to Find a Low Interest Rate Business Loan
The best way to find a low interest rate business loan is to compare multiple business lenders.
Whether online or in-person at a bank, you’ll be asked to input your unique information to determine how much you qualify for. Then, you’ll be provided with a quote that includes the loan amount, payment period, interest rate and estimated monthly payment.
The best low interest rate business loans include:
- SBA loans
- Traditional bank loans
- Medium-term loans
- Business lines of credit
At FreshBooks, we recommend comparing multiple options to determine the best cost for you. Then, you can use the free Business Loan Calculator to estimate the cost of your loan and how long it will take for you to pay it off.
The success of your business starts with smart investing. Let FreshBooks help you choose the best business loan for you.
Waiting for that loan? Use FreshBooks to invoice clients and keep your cash flow healthy.