Business Loan Calculator Step By Step Guide Examples

Business Loan Calculator

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

About Business Loan Calculator

The formula for calculating Business Loan is per below:

Business Loan Calculator

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

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

Wherein,

L is the loan amount or borrowed amountr is the interest rate per annumN is the number of periods for which the loan will last forf 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 a machinery loan wherein the machine is kept as security and if the borrower defaults on the payment. The bank has the right to sell the machinery and collect the proceeds.

Therefore, if such extreme scenarios need to be avoided, one needs to know about their borrowing capability and financial condition and check whether they can fulfill the debt obligations. At the same time, check the amount of interest to be repaid. 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 interest rate applicable for the loan taken.

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

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

Step #5 – 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.

Examples

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 15 years. A bank is ready to offer the loan based on their long-term business relationship, as their credit score has also been maintained. Bank will charge a 6% rate of interest which shall compound monthlyInterest Which Shall Compound 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.

Based on the given information, you have been 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, which is $150,000.

The period for the loan will last 15 years, but here, the firm will repay monthly. Therefore, the number of payments that SNS shall make is 15*12, which is 180 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%.

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

= ($150,000 * 0.50% * (1 + 0.50%)^(1512)) / ((1 + 0.50%)^(1512) – 1 )= $1,265.79

Therefore, the Installment amount monthly will be $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

Example #2

Machinery ltd is in a financial crunch, and it could declare bankruptcy if they don’t get a loan. 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 a consortium, wherein multiple banks will provide a certain amount but at the same interest rate to avoid one bank’s 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:

The rate of interest agreed upon is 9.77%, which shall be compounded and repaid quarterly, and the period will be for eight years.

Based on the given information, you must calculate the quarterly installment amount and the excess amount in the form of interest paid by Machinery ltd.

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 period of the loan will last ten years. Still, since here the firm is going to repay quarterly; therefore, the number of payments that Machinery ltd shall make is 8*4, which is 32 equal quarterly installments, and lastly, the interest rate is 9.77% fixed, which shall be calculated every quarter that will be 9.77%/4 which is 2.44%.

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

= ($80,000 * 2.44% * (1 + 2.44%)^84 ) / ( (1 + 2.44%)^(84) – 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

Conclusion

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