Business Loan Calculator

Business Loan Calculator

Business Loan Calculator is a subset of loan repayment calculator and can be used to calculate the installment amount that will be paid back to the financial institution and further how much interest has been paid can be also be known by deducting the total repayment amount from the borrowed amount.

Business Loan Calculator

(L * r * ( 1 + r )(N * f) ) / ( ( 1 + r )(N * f) – 1)


Wherein,
  • L is the loan amount or borrowed amount
  • r is the interest rate per annum.
  • N is the number of periods for which loan will last for
  • f is the frequency wherein the loan amount is to be paid
loan amount
$
ROI
%
number of periods
frequency

About Business Loan Calculator

The formula for calculating Business Loan is per below:

Installment = (L * r * ( 1 + r )N * f ) / ( ( 1 + r )N * f – 1)

Wherein,

  • L is the loan amount or borrowed amount
  • r is the interest rate per annum
  • N is the number of periods for which the loan will last for
  • f is the frequency wherein the loan amount is to be paid

The Business Loan can be borrowed in many different forms, such as mezzanine financing,Mezzanine Financing,Mezzanine financing is a type of financing that combines the characteristics of debt and equity financing by granting lenders the right to convert their loan into equity in the event of a default (only after other senior debts are paid off).read more asset-based financingAsset-based FinancingAsset-based lending refers to the loans offered by financial institutions to business entities against the asset collaterals. Such collaterals include machinery, equipment, real estate, inventory, accounts receivable and other balance sheet assets.read more, term loans, cash flow loans, and business advance loans. The loans could be unsecured or secured. Some loans are collateralized, such as machinery loan wherein the machine is kept as security, and in case the borrower defaults on the payment, then the bank has the right to sell off the machinery and collect the proceeds.

Therefore, if such extreme scenarios need to be avoided, one needs to know about their borrowing capability and business financial condition and check whether they are able to fulfill the debt obligations and, at the same time, also check the amount of interest that is to be repaid by them. This calculator will help the business firms to calculate the installment amount and also interest by taking a total of installments paid and to be paid and deducting the same from the amount that was borrowed.

How to Use the Business Loan Calculator?

One needs to follow the below steps in order to calculate the monthly installment amounts.

Step #1 – Determine the amount that needs to be borrowed by the business, which should be the principal amount.

Step #2 – Figure out the rate of interest that is applicable for the loan taken.

Step #3 – Determine the periodical rate of interest. For example, if the interest rate, if 8% and the same is to be paid monthly, then the rate of interest would be 0.66% per month.

Step #4 – Multiply the initial loan amount by a rate of interest determined in step 3

Step #5 – Now, we need to provide the compounding effect of the same by the rate of interest calculated in step 3 until the end of the loan period.

Step #6 – As given in the formula, apply the discounting effect (denominator)

Step #7 – The resultant figure will be the periodical installment amount.

You can download this Business Loan Calculator Excel Template here – Business Loan Calculator Excel Template

Example #1

SNS is operating in a two-wheeler business and is currently facing liquidity issues due to long terms borrowed have been tied up in the plant and machinery. SNS wants to borrow $150,000 for a period of 15 years. A bank is ready to offer the loan on the basis of their long term business relationship as their credit score has been maintained as well. Bank will charge a 6% rate of interest which shall compound on a monthlyInterest Which Shall Compound On A MonthlyMonthly compound interest refers to the compounding of interest every month, which implies that the compounding interest is charged both on the principal and the accumulated interest.read more basis.

Based on the given information, you have required to calculate the installment amount and the interest that the SNS would be paying on the same.

Solution:

We are required to calculate the amount of Installment, for which we will determine the loan amount to be borrowed that is $150,000.

The number of the period for loan will last 15 years, but since here, the firm is going to repay on a monthly basis. Therefore, the number of payments that SNS shall make 15*12, which is 180 equally monthly installments, and lastly, the interest rate is 6% fixed, which shall be calculated monthly basis that will be 8%/12, which is 0.66%.

Business loan Calculator Example 1

Now we shall use the below formula to calculate the monthly installment amount.

Monthly Installment = (L * r * ( 1 + r )N * f ) / ( ( 1 + r )N * f – 1) 
Business loan Calculator Example 1-1
  • = ($150,000 * 0.50% * (1 + 0.50%)^(15*12)) / ((1 + 0.50%)^(15*12) – 1 )
  • = $1,265.79

Therefore, the Installment amount monthly will $1,433.48 and the amount of interest that will be paid is $1,265.79 * 12 * 15, which is $227,841.34 less the initial principal amount, which is $150,000 that will be $77,841.34

Business loan Calculator Example 1-2

Example #2

Machinery ltd is in a financial crunch, and if they don’t get a loan, they could declare bankruptcy. Since the risk is more for the banks, the state bank, one of the leading banks, has decided to grant loans in the form of consortium wherein multiple banks will provide a certain amount but at the same rate of interest so as to avoid one bank exposure to credit riskCredit RiskCredit risk is the probability of a loss owing to the borrower's failure to repay the loan or meet debt obligations. It refers to the possibility that the lender may not receive the debt's principal and an interest component, resulting in interrupted cash flow and increased cost of collection.read more. Below are the details:

ParticularsAmount
State Bank$30,000
Central Bank$25,000
City Bank$15,000
Union Bank$10,000
Total Loan Amount$80,000

Mutually the rate of interest agreed upon is 9.77%, and that shall be compounded and repaid on a quarterly basis, and period will be for 8 years.

Based on the given information, you are required to calculate the quarterly installment amount and the excess amount in the form of interest that will be paid by Machinery ltd.

Solution:

We are required to calculate the amount of Installment, for which we will determine the loan amount to be borrowed that is $30,000 + $25,000 + $15,000 + $10,000 which shall equal to $80,000.

The number of the period for loan will last 10 years, but since here the firm is going to repay on a quarterly basis, therefore, the number of payments that Machinery ltd shall make 8*4, which is 32 equally quarterly installments and lastly, the interest rate is 9.77% fixed which shall be calculated quarterly basis that will be 9.77%/4 which is 2.44%.

Example 2-1 (given data)

Now we shall use the below formula to calculate the EMI amount.

Quarterly Installment = (L * r * ( 1 + r )N * f ) / ( ( 1 + r )N * f – 1)
Business loan Calculator Example 2-2
  • = ($80,000 * 2.44% * (1 + 2.44%)^8*4 ) / ( (1 + 2.44%)^(8*4) – 1)
  • = $3,631.92

Therefore, the Installment amount quarterly will 3,631.92 and the amount of interest that will be paid is 3,631.92 * 8 * 4 which is $116,221.36 less the initial principal amount which is $80,000 that will be $36,221.36.

Example 2-3 (interest)

Conclusion

As discussed, business loans can be taken in various forms like cash credit, cash flow loans, term loans, etc. and one that was discussed here was term loan wherein the equal periodically installment is paid.

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This has been a guide to the Business Loan Calculator. Here we discuss how to calculate the installment amount that will be paid back to the financial institution using a business loan calculator along with step by step examples. You may also take a look at the following useful articles –