Many small business owners dream of all the amazing things they could do with just a little more capital. A small business loan often becomes a very enticing option. After all, it’s a lump sum of money than can lead to so many great things for your company. Money that can be used to hire more experienced staff, renovate an office space, upgrade crucial equipment, improve training methods and procedures, or even just buying more materials necessary for your business.
While the ideas may seem endless, you have to be careful: don’t fall into the trap of just thinking about what you can gain from a business loan, overlooking what that loan will actually cost you. Some lending organizations may include a number of fees and costs that add up, and interest rates can vary and change how the loan will affect your business’s bottom line. You must know exactly how much a business loan will cost you. And now you can.
Considering the Costs
Figuring out the amount you would like to receive in a loan it’s easy, but, how much are you going to pay for it? How long are you going to make payments? What will the fees and interest rates on the loan be? Thankfully, some organizations give you the tools to take out a loan with as much information as possible. One such organization, Camino Financial, has created a Business Loan Calculator for business owners to use to figure out exactly what their business loans will cost them.
How the Business Loan Calculator Works
Camino Financial business loan calculator allows you to input your desired loan amount, the expected length of the loan (from 24 to 60 months), and the potential interest rates of the loan (1% to 2.5%). Let’s say I own a restaurant and I have plans to expand it, but I’m short $50,000. That’s the loan amount I would enter. Then I pick 36 months for the duration of my loan (or 36 payments), and the monthly interest rate: in my case, I opt for an average 1,5%.
Once that is done, the calculator gives me the following information on my proposed loan:
- Closing Fees: The amount of closing fees you will pay on the loan. This amount is deducted from the loan amount on the day it is funded. In my case, the amount is $3,495.
- Total Interest Paid: The exact amount of interest that you will pay during the full term of the loan. The calculated interest I would pay is $15,074.31. This may sound like a lot, but I have to consider the potential profits I can make once I get the loan and the fact that I didn’t pick the lowest interest option.
- Cost of the Loan: How much the entire loan will cost you, including the closing fees and total interest to be paid. The sum of both figures in my case is $18,569.31.
- Monthly Payment Amount: The amount that you will pay monthly for the loan. My monthly payment would be $1,807.62. That’s actually the key figure. Now I have to thoroughly consider if I can pay that amount monthly and if I feel comfortable doing so.
To make things easier, and as an added bonus, the calculator also lists some helpful tips for you to consider when taking out a loan, including what percent of your monthly income your loan payment should be and how to balance the cost of the loan with the expected benefit you will receive from the loan. That way I can figure out if the monthly payment of $1,807.62 fits me or not. If you are not satisfied with the results, just click “Reset Calculator” and start over with a different combination of figures.
Applying for a Loan
Once you know exactly how much a loan will cost you and how much your monthly payments will be, you will be in a much better position to judge whether that business loan is the correct decision for you. You may find that you need to readjust the loan amount, or to spread out the payments over a longer period of time.
Derek Tallent is a writer for Camino Financial, an online lender for small business loans. He has a degree in Bachelor of Arts in Political Science from the University of Texas at Dallas. Not only has he written numerous academic papers on subjects ranging from multinational corporations to Supreme Court appointments, but also he has a knack for creative writing.