Borrow with your eyes open
A business loan’s headline rate tells you surprisingly little. A £30,000 loan at 8% over 3 years costs about £3,850 in interest; stretch it to 5 years and the monthly payment drops by a third — but the total interest nearly doubles to around £6,480. Same loan, same rate, very different cost. The term matters as much as the rate, and lenders advertise the monthly figure, not the total.
This calculator shows the full picture: monthly repayment, total interest, total cost of the loan, and a year-by-year breakdown. Compare two scenarios side by side — different rates, different terms, different amounts — before you sign anything.
Estimate only, not financial advice. Actual loans may include fees, variable rates or different compounding.
How to use it
- Enter the loan amount you are considering.
- Enter the annual interest rate (APR if you have it — APR includes fees and is the honest comparison figure).
- Enter the loan term in months or years.
- Read the monthly repayment, total interest payable and total cost.
- Add a second scenario (a shorter term, a lower rate, a smaller amount) to compare the total cost difference directly.
What it calculates and how the formula works
The standard amortising-loan formula:
| Measure | Formula |
|---|---|
| Monthly repayment | P × r(1+r)^n ÷ ((1+r)^n − 1), where P = principal, r = monthly rate, n = months |
| Total repaid | Monthly repayment × number of months |
| Total interest | Total repaid − principal |
Assumptions:
- Fixed interest rate and fixed monthly payments for the whole term (an amortising loan). Variable-rate loans and interest-only periods are not modelled.
- No arrangement fees, early-repayment charges or payment holidays are included — enter the APR rather than the nominal rate to capture fees approximately.
- The breakdown assumes payments start one month after drawdown and are made on time, every time.
Worked example: the equipment loan
Carlos runs a mobile car-detailing business in Texas and needs a $25,000 van fit-out. His bank offers 9% APR. He compares 3 years vs 5 years:
3-year term (36 months):
- Monthly repayment: $794.99
- Total repaid: $28,620
- Total interest: $3,620
5-year term (60 months):
- Monthly repayment: $518.96
- Total repaid: $31,138
- Total interest: $6,138
The 5-year term saves $276 a month but costs $2,518 more in total. Carlos’s van will earn revenue from month one, so he takes the 3-year term — the higher payment is affordable and he saves two and a half thousand dollars. Without the comparison, the lower monthly figure would have been tempting.
Important considerations and limitations
- Compare APR, not headline rates. APR includes most fees and is the standardised comparison figure. A “7.5% loan” with a 3% arrangement fee can be worse than an 8.5% loan with no fee.
- Affordability is about cash flow, not just the total. The cheapest loan overall is useless if the monthly payment strangles your business in a quiet month. Check the payment against your worst month, not your best.
- Secured vs unsecured changes everything. Secured loans (against property or equipment) carry lower rates but put the asset at risk. Unsecured business loans cost more. Government-backed schemes (like US SBA loans) often offer better terms for qualifying businesses.
- Early repayment terms matter. Some loans penalise early repayment; others allow overpayments. Ask before signing — flexibility has value this calculator cannot price.
- This is an estimator, not a loan offer and not financial advice. Actual offers depend on credit checks, trading history, security and the lender’s criteria. Talk to a qualified adviser before borrowing.
- Browser-local: your figures never leave your browser.
Frequently asked questions
How do I calculate monthly repayments on a business loan?
Use the amortising formula: monthly payment = P × r(1+r)^n ÷ ((1+r)^n − 1), where P is the loan amount, r the monthly interest rate and n the number of payments. The calculator above does this instantly.
Is a longer loan term better?
It lowers the monthly payment but raises the total interest — often substantially. Longer is better for cash flow; shorter is better for total cost. Compare both with the scenario feature before deciding.
What is a good interest rate for a small business loan?
It depends on your country, credit profile, security and term. Government-backed loans (US SBA, UK Recovery Loan Scheme successors) typically offer the best rates for eligible businesses; unsecured online lenders are usually the most expensive. Get multiple quotes and compare APRs.
What is the difference between APR and the interest rate?
The interest rate is the cost of borrowing the principal. APR (annual percentage rate) rolls in most fees and charges, expressed as a yearly rate — making it the fairer way to compare offers.
How much can my business borrow?
Lenders typically look at revenue, profitability, trading history, credit score and available security. A common rule of thumb is that total debt service should stay well under 30–40% of operating cash flow — but every lender has its own criteria.
Should I take a business loan or use savings?
Debt preserves your cash buffer for emergencies but costs interest; savings cost nothing in interest but leave you exposed. Many advisers suggest keeping 3–6 months of operating expenses in reserve regardless — do not empty it to avoid a loan.
Will this calculator affect my credit score?
No. It is a pure maths tool running in your browser — no data is sent anywhere and no credit check is involved.
Is my data uploaded anywhere?
No. All calculations run locally in your browser.
Related tools
External references
- SBA — Loans: funding programs
- SBA — Pay taxes: federal, state and local obligations
- GOV.UK — Keeping business records
This tool provides estimates for guidance only and is not professional financial, tax, or legal advice.