How Does a Business Loan Calculator Work?

business-credit-loanMany companies rely on financial support from lenders and banks in order to afford the equipment and facilities that their employees require. Some request larger sums of cash to be put toward the cost of a business premises, while others prefer smaller amounts that can be spent on furniture and devices to maintain the daily operations that take place within an office space.

When it comes time to applying for a loan, there are a few things that many experts recommend using to stay one step ahead where costs are concerned. One of these things are called calculators and they are used by applicants, brokers and banks alike to help them to work out how much can be borrowed, as well as what the borrower may be able to pay back.

What is a business loan calculator?

As the name explains, these types of calculators are useful to those that intend to work out how much they can borrow for a business loan. Many applicants use them for free via websites and although fairly simple when looked at with a glance; they are really quite technically involved pieces of software.

They make it possible for an applicant to enter the amount that they would like to borrow, as well as the current interest rates and the percentage that they’d like to pay upfront for their deposit. There are other input fields that can (and should) be utilised – these include repayment durations and frequencies, as well as factors that relate to business borrowing in general.

How do they work?

Most of these types of calculators work by evaluating all of the data that has been placed within the relevant fields and then working out how the sums affect one another, before presenting a final amount that demonstrates what the borrower should expect to repay. For example, if an individual was to request $100,000 from their bank, at a rate of 3% and a deposit term of 15%, they would be required to pay $15,000 out of the initial $100,000 and then repay over a period of time that suits their preferences.

In most cases, business loans can be paid back over the course of eight years at the most, but some lenders extend lesser times and others offer greater periods. So, if they were due to pay back the outstanding $85,000 over the course of five years for example, the calculator would work out $85,000 split into 60 individual payments (twelve months per year), which would amount to just over $1,416 per month in repayments.

The interest rate is then applied depending on what is owed each month, so if 3% was due for the first year, then for the next twelve months the borrower would be expected to repay a total of $1,458 per month (with the additional $42 representing the 3% rate fee). This money is how lenders make a profit on their investment.

Although seemingly low, the rate in the above example would act to add a further $500 a year to a borrower’s repayment plan and this is why it is important to turn to tools like loan calculators, as they will be able to provide results relating to different interest rates, with the lower ones offering the biggest savings to applicants.

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