If you’re running a small business that’s showing promise for growth and expansion (but you lack the needed funding to move it forward), a business loan may be what you were looking for.
Before deciding on applying for one, though, you will need to determine whether or not you can afford the costs involved.
Knowing the extra costs they usually involve and understanding how repayment commitments could impact your finances is what you need to get rid of whatever apprehensive or dreadful feelings that sometimes come with borrowing money.
If you want to know everything (cost related) beforehand, a business loan calculator can help you big time.
A business loan calculator is as easy as first grade math
A business loan calculator is a simple online device that will provide you information regarding the calculated costs of a loan, the amount of your monthly payments and other critical data.
The steps are simple to follow:
- Enter the amount of the loan you’re planning to take.
- Enter the number of monthly payments you prefer, choosing from a range of 24-60 months.
- Enter the interest rate.
- Click CALCULATE. The results from this business loan calculator will show you how much you need to pay monthly and the total cost of the loan (this covers total interest cost you shall have paid at the end of the loan term) with possible some minor documentation fees.
Should the numbers shown by the tool not align to what you have in mind (or should they tell you that you can’t afford the loan), simply click RESET CALCULATOR then put in new, revised entries (perhaps entering a longer term or lowering the loan amount) and repeat the process.
You can revisit your entries as many times as you need until it reflects the numbers you’ll be comfortable with, clearly letting you know you can afford the loan.
Knowing how interest charges work is essential
Interest is the price you pay for using a loan provider’s money. All loans come with it, more popularly referred to as APR (Annual Percentage Rate). Essentially, a lending institution takes the balance of your loan and multiplies it by your APR to calculate the interest cost for each monthly payment.
Let’s say you take out a loan for $100,000. If your interest rate is 4.01%, it means you will be paying $4.01 per year for every $100 you owe.
However, because your balance decreases over the course of the year, you won’t be paying 4.01% of $100,000 but a slightly lower amount because interest is charged based on the principal’s balance each month.
There’s the yearly interest rate, but how to calculate it per month?
You’d like to know your interest rate per month?
Using the above example, simply divide 4.01% by 12. You’ll then have a monthly interest rate of 0.0033416 or, $334.16 on the $100,000 loan. If your monthly payment is $500, the $334.16 goes towards interest payment and the $165.84 goes to paying the principal.
As the principal balance goes down, so will your monthly interest payments.
What does all this mean? It means that if you can work out a lower interest rate on your loan, you’d be ahead of the game.
3 easy tips to get a lower interest rate
- Work towards getting a good credit rating by paying your other debts promptly.
- Make extra payments on your loan.
- If your credit rating is good, it’ll be smart to negotiate a lower interest rate with the lending outfit. They tend to look favorably on borrowers with high credit scores.
Getting a business loan could well be one of the toughest decisions you’ll have to make as a business owner, but if you do your math (and of course with the help of the business loan calculator), you should be able to determine if, in fact, you can or cannot afford a loan.
So, why wait? Start planning how to grow your business.