A business loan calculator turns four facts into a repayment estimate: how much you borrow, the interest rate, how long you hold the loan and how often you pay. Use the calculator above to test different amounts and structures. Then read on, because the number it shows is only as good as what you put in, and it leaves some real costs out.
We do not publish rates, so the calculator has no default rate. Take the rate from your own quote and enter it, because a loan is priced on your circumstances.
How is a business loan repayment calculated?
A repayment is calculated by spreading the interest, and in some structures the principal, across the number of payments in the term. Each period, interest is charged on the balance still owing, so a larger balance or a longer wait between payments means more interest.
In words, the calculation for each period goes like this:
- Take the balance owing at the start of the period.
- Work out that period’s interest by applying the rate for the length of the period to the balance.
- Decide how much of the payment goes to interest and how much to principal. On interest-only, all of it goes to interest. On principal-and-interest, the part left over after interest reduces the balance.
- Repeat with the new balance until the term ends.
Early payments on a principal-and-interest loan are mostly interest, and the share going to principal grows over time.
What is the difference between principal-and-interest and interest-only?
Principal-and-interest repayments pay the loan down over the term, while interest-only repayments cover interest only and leave the whole amount owing at the end. ASIC’s MoneySmart describes interest-only repayments as covering only the interest, so the amount borrowed does not reduce during that period.
| Feature | Principal-and-interest | Interest-only |
|---|---|---|
| Repayment size | Higher per payment | Lower per payment |
| Balance during term | Falls with each payment | Stays the same |
| Amount owing at end | Nil if paid to schedule | The full amount borrowed |
| Total interest | Lower overall for the same term | Higher overall for the same term |
| Suits | Longer loans, steady income | Short loans with a clear exit |
| Main risk | Heavier cash-flow commitment | Needing a lump sum at the end |
Interest-only is common on short-term property loans, where the exit is a sale or refinance. See short term business loans for how terms and exits fit together.
What do you enter in a business loan calculator?
You enter four inputs, and each one changes the answer in a different way.
- Loan amount. The amount you intend to borrow. If interest will be prepaid, remember you will receive less than this in hand.
- Interest rate. From your own quote, entered as the rate the lender states. Do not borrow a figure from an advertisement.
- Term. How long the loan will run. Longer terms lower principal-and-interest repayments but increase total interest.
- Repayment frequency. Weekly, fortnightly or monthly. Choose the rhythm that matches when your business receives money.
Then select principal-and-interest or interest-only. If you are unsure which suits, run both and compare the repayment and the amount still owing at the end.
How do you read the result?
You read the result as three numbers: the repayment per period, the total interest over the term and the amount still owing at the end. The repayment tells you whether the loan fits your cash flow. The total interest tells you what the loan costs in the loan’s own terms. The closing balance tells you what the exit must cover.
On an interest-only run, pay most attention to the closing balance. It equals the original amount, and your plan to repay it, whether by sale, refinance or settlement, is what makes the loan work. Our guide to a business loan exit strategy shows how to present that plan.
Illustrative example: the same loan, two structures
Illustrative example: a business borrows $120,000 for twelve months. We will not put a rate in the example, so call the interest charged for the first month on the full balance “X”. You would work out X from the rate in your own quote.
On an interest-only structure, the business pays X every month for twelve months, which is twelve lots of X in total, and still owes $120,000 at the end. The exit, perhaps a refinance or a sale, has to cover the full amount.
On a principal-and-interest structure where $10,000 of principal is repaid each month, the first payment is $10,000 plus X. The balance then falls, so the second month’s interest is a little under X, and by the twelfth month it is only one-twelfth of X. Added up, the interest across the year is about six and a half lots of X instead of twelve, and nothing is owing at the end. Loans with level repayments spread the same effect differently, but the pattern is similar: paying down the balance cuts the interest.
The catch is cash flow. The first principal-and-interest payment is far heavier than an interest-only one. The same loan, two shapes, and the right one depends on whether your cash flow or your exit is the tighter constraint.
How do term and frequency change the result?
A longer term lowers each principal-and-interest repayment but raises the total interest, and a shorter term does the opposite. Spreading the same debt over more periods means the balance stays higher for longer, and interest is charged on it throughout.
Frequency works on a smaller scale. Paying weekly or fortnightly brings the balance down sooner than paying monthly, so a little less interest builds up on a principal-and-interest loan. On an interest-only loan the gap is minor. The practical question is simpler: which rhythm matches the days your customers actually pay you? A business paid monthly can struggle with weekly debits, however neat the maths.
When you test terms, keep your exit in view. A short-term loan with a refinance as the exit needs a term long enough for the refinance to complete, with a buffer for delays.
What does the calculator result leave out?
The result leaves out everything that is not interest and principal. That matters, because on short-term loans the extras can be significant.
- Fees. Establishment, legal, broker, discharge and extension fees do not appear in a basic repayment figure.
- Prepaid interest. If interest is deducted at funding, the cash you receive is smaller than the loan amount.
- Interest added to the loan. The closing balance will be larger than the amount you borrowed.
- Default interest. Charged if you miss a payment or run past the term.
- Your own tax position. Business borrowing costs can be deductible, but that depends on your circumstances and your accountant can confirm it.
For a full list and a method for comparing offers, read business loan interest rates and fees and the compare business loans scorecard.
How do you use the calculator to compare two loans?
You compare two loans by running the same amount and term through both structures and then adjusting for fees. A simple routine:
- Enter the amount and your realistic holding period.
- Use the rate from each quote in turn.
- Note the repayment, total interest and closing balance for each.
- Add each quote’s fees, and subtract any prepaid interest from the cash you receive.
- Compare the final totals in dollars, then weigh speed and flexibility.
If you are weighing secured and unsecured options, unsecured business loans explains what that path looks like. For caveat structures, see caveat loans.
You can get a real quote to put real numbers into the calculator.
Ready to move?
Once the numbers make sense, the next step is a quote on your own deal. The quick application takes a few minutes to complete. Tell us the amount, the term you have in mind and what you can offer as security, and we will line up the structures worth running through the calculator. Prefer to talk it through? Call 03 4059 1829.