Business Loan Calculator: How Much Can I Borrow?

Business loans are an easy way of getting funds for your entrepreneurship dreams.

Entrepreneurs today dream of big businesses and having a mark in the corporate world, but to reach that point, it is important to start slow. And in that starting slow process, you need the money.

If you have thousands of dollars just sitting around, you don’t need to think further. Just start up your own business. But let’s be real; many dreaming entrepreneurs have a kickass vision but not the finances to make that dream a reality. So what do they do? Read below to know more.

What is a Loan in Business?

A loan is the kind of money someone else lends you for the time being, and you have to pay it back in monthly installments. Business loans are obtained to start businesses, this money is used as a start-up capital to buy office space, equipment, inventory etc. that you would need in the first 2-3 months.

Whenever the loan is given to a borrower, a repayment plan is also given with it. On it, there is an agreed-upon interest rate that is to be paid with every installment, and a duration till when the repayment is done.

There is an option to pay a bigger amount in the early years only if the borrower can afford, which will help in ending the loan earlier than the due date.

Types of Business Loan

Business loans aren’t as straightforward, there are many types of business loans that are given out to borrowers. There are essentially 5 major types of loans, but there can be certain variations with those too. With these, I will also tell you the pros and cons of each option.

SBA Loans:

These are small business administration loans that are aimed to help out small-scale businesses ready to start up. The range is also relatively lower, but they can be anywhere from $5000 to $5 million. These also have very low interest rates from 5% to 13% because small business owners may find it hard to repay as their business is only just starting.

Pros:

  • Low interest rates
  • Long term given for repaying the loan
  • Don’t need experience in business- even beginners can apply

Cons:

  • Application process can take long, even several months
  • Strong credit history required

Business Term Loan:

A business term loan usually works the same way as a traditional loan, but these have a specific term of 5 to 10 years. The duration of the loan purely depends on the case and how much money is being borrowed. The average interest rate is from 7% to 30%.

Pros:

  • Can be used for any business
  • Guaranteed repayment plan
  • Can borrow more amount too
  • Takes less time to be approved

Cons:

  • Early repayment charges
  • Collateral is required

Business Line of Credit:

There are many deserving entrepreneurs who are refused traditional loans because of their poor credit history. A business line of credit is a loan type where poor performing borrowers are also given the loan, average APR rates are 7% to 25%, and repayment terms are usually between 6 months and 1 year, but exact terms vary depending on your business’ revenue and credit score.

Pros:

  • Available for emergencies
  • Fast approval times
  • Lower APR rates
  • No high credit rating required

Cons:

  • Can be used for any business
  • Guaranteed repayment plan
  • Can borrow more amount too
  • Takes less time to be approved

Equipment Financing:

This is the type of loan that is only dedicated to buying the equipment that many businesses need. It also doesn’t require a lot of money so the loan amount and duration is less too, around 5 years.

Pros:

  • No high credit score is required
  • Equipment serves as collateral for the loan
  • Quick source of funding

Cons:

  • Equipment depreciation can end up paying more than what’s worth
  • Equipment could be obsolete during the time of the loan

Working Capital Loan

This is also a short term loan aimed at expanding the current mode of business by bringing in more inventory, cutting down debts etc. This kind of loan requires an adequate amount of paperwork and a proper application to come through.

Pros:

  • Low interest rates, in between 3% to 7%.
  • Easily accessible through commercial banks

Cons:

  • Good credit history required
  • Takes a lot of time for the paperwork to get accepted

Risks and Benefits of Business Loans

It may be easy for you to qualify for a sufficient amount of business loan, but there are several benefits and risks attached to getting a loan. Here’s a potential list of what you might expect.

Benefits:

  • You can borrow as much amount as you need for your business
  • You’re the sole owner of the money
  • Funds can be easily accessed
  • Low interest rate
  • The interest paid on the business loan is tax deductible
  • Assets are liquidated in case you can’t pay, so if your business fails, you don’t have to worry about repaying it from your pocket or savings
  • Usually no collateral is needed
  • Business credit is likely to improve if monthly payments are made promptly

Risks:

  • Not all companies qualify for business loans
  • A reasonable credit history is required
  • You might not be approved for the amount you’re asking
  • Some types of loans may have a high rate of interest
  • Many start-ups fail to repay the loan during the first years and end up ruining their credit score

Business Loan Requirements

If a lender is giving you money, they need to make sure you’re an authentic bet and that you won’t waste his money and time. They need to have that confidence in you that you will return the amount when it’s due. Here are some of the basic requirements that you will need to fulfill.

Business plan: Having an authentic business plan will not only help you tap potential investors but will also have you view as professional and authentic. Make sure your business plan has a clear vision: what your business is, how you’re planning your budget, strategies and how you will pay the lender back. This should be well rehearsed in every way and should be packed with relevant industry data and information.

Collateral: Not all, but some business loans require you to have collateral. This could be your personal assets, business assets or even home equity that can serve as collateral. An SBA generally requires collateral, so you can use your home equity for this purpose!

Good credit score: It all always comes down to the credit score which is used as a measurement metric to determine your ability to pay back the loan. A good credit score that qualifies for a business loan is often higher than 680, and low-risk borrowers usually get it. If you have a low score, find a way that you can fix it so that you qualify for a low interest paying business loan.

Accounts payables and accounts receivables: These are accounting terms for assets and liabilities; the lender will want full detail about the amount you owe to other businesses or corporate lenders and how much your existing assets are worth. When the lender even starts considering your case, the next step will be documentation. Make sure all your records are verified and up to date to save time on your application.

Financial details: A lender needs to protect their money from borrowers who are likely to default, which is why before lending you the money, he will scrutinize your financial details like your bank statement, insurance records, tax history etc. Everything that he asks for is for his own satisfaction that you’re a genuine case. Make sure everything is transparent and true, because if he suspects any dishonest information, your chance of getting a business loan could be nullified.

Business Loan Calculator how much can I borrow?

If you’ve had everything in your mind and have devised strategies on how to run your business, a major component of it now needs focusing. BUDGET!

Many people have amazing business ideas, but because they don’t budget their finances properly, their businesses fail early. Before you even go to a lender, you need to make sure you have calculated the loan at your end, and to do so, you can check out a business loan calculator available on the internet. This will have all your information like your budget and duration and will run an algorithm which will tell you how much loan you qualify for.

These calculators are also used when you’ve been given a loan and you have to decide on the monthly payments. You enter the loan amount, the interest rate and the term of the loan, this calculator will then tell you how much you can pay on a monthly basis.

These are great online tools that are not only handy but also give close estimates of business loans.

Current Business Loan Rates

Business loan rates are affected by the market and the interest rates; the current business loan rates along with interest rates for 2020 are:

Lender APR Loan Amount Terms Eligibility Criteria
American Express 6.98%–19.97% $3,500–$75,000 30, 60 or 90 days At least one year of account history on an American Express business card
SmartBiz 4.75%–7% $30,000–$5 million 10–25 years Two years in business and a credit score of at least 650
OnDeck as low as 35.91% $5,000–$500,000 3–36 months One year in business, $100,000 in annual revenue and a credit score of at least 600
Bank of America as low as 3.00% $10,000–$100,000 12–60 months Two years in business, $250,000 in annual revenue, and personal credit score of 670 or higher
BlueVine as low as 4.8% $5,000–$250,000 6–12 months At least three months in business and a credit score of at least 530
Funding Circle as low as 4.99% $20,000–$5 million 6 months–5 years Two years in business, at least $660,000 in annual revenue, and not a resident of Nevada

Note: Sample rates are extracted online, courtesy of TheSimpleDollar.

Conclusion

Entrepreneurs at any stage in life can need a business loan, whether it is to start up their business from scratch or whether it is to buy office equipment to expand. Whatever the reason, business loans have actually become much easier and accessible to people.

Of course, there are a couple of requirements that qualify you for a loan and you need to fit in those. But it all comes down to the repayment plan! Make sure you take a loan you’re sure you will be able to pay back including interest.

There are many private and commercial lenders available to give out loans, so make sure you shop around to get the best deal possible!

Nabeel Ahmad

Nabeel Ahmad

Nabeel Ahmad is the founder and editor-in-chief of Insurance Noon. Apart from Insurance Noon, he is a serial entrepreneur, and has founded multiple successful companies in different industries.

Leave a Reply

Insurance Noon is the world's leading source of insurance related content on the web, focusing on industry news, buying guides, reviews, and much more.