Successful businesses need to spend money to make money and a business loan is the best option to finance business growth. However, it’s important to know how much a business loan will actually cost you.
Some entrepreneurs get easily overwhelmed with all the figures, calculations and fees, and need help in determining the cost of their small business loans.
Using a Camino Financial business loan calculator is a great idea to find out how much a loan would cost.
What Is A Business Loan Calculator?
Is a form of a digital computer system and an excellent tool that helps you calculate your monthly payments, the amount you’ll pay in interest, and the total price of your loan.
How much money does a loan cost?
You can calculate the true cost of a business loan using a business loan calculator. You need to make sure it does not exceed 80% of your monthly personal and business income net of existing debt payments.
Also, ensure the cost of the business loan does not exceed the expected benefit from your investment. A reasonably priced loan will not burden your future cash flows.
Are there any other costs besides the interest? How much will they sum up?
There are some common fees you should know when you’re taking out a business loan, such as:
- Origination fee: This is the money the lender charges to process your application. They may be charged as a flat fee or a percentage (1% to 6%) of the loan amount.
- Service or processing fees: This is a fee that lenders charge to cover the costs necessary to go over your loan.
- Prepayment penalty: Not every business loan has a prepayment penalty and these are charged for prepaying on a loan balance.
- Referral fee: This is a fee that lenders charge if you apply for a business loan by using a connection service.
Here are some brief case studies of small business owners who have used business loan calculators to make sure if they should apply for a loan:
A business loan can help an owner update old and out-of-date equipment
Martha Fernandez is the owner of a vegan restaurant. She realized she needs to buy new equipment to keep up with other restaurants. She used a business loan calculator to make sure she will get a good deal on her loan.
Her monthly net profits are $3,500 and she’s considering to borrow in a loan $10,000 to buy new equipment for her business in order to get at least $4,000/month after the investment.
After using a business loan calculator, the results are:
- Monthly Payment: $499.24 (which is good because doesn’t exceed the 80% of her monthly net profit)
- The total cost of the loan:
- Total interest paid: $1,981.78
- Closing Fee: $699.0
- Funding Fee: $0
- Documentation Fee: $0
- Cost of the Loan: $2,680.78 (which is good because the total cost of the loan doesn’t exceed the total return expected after the investment.)
Should she apply for a loan? Yes!
A loan could help buy more inventory, which in turn means more clients
Carlos Duarte owns a small grocery store. His monthly net profits are $1,500 and he’s considering to get an $8,000 loan to buy more inventory for his store and get at least $3,000/month after the investment.
After using a business loan calculator, the results are:
- Monthly Payment: $289,22 (which is good because doesn’t exceed the 80% of his monthly net profit, which is $1500)
- The total cost of the loan:
- Total interest paid: $2,411.89
- Closing Fee: $2
- Funding Fee: $0
- Documentation Fee: $0
- Cost of the Loan: $2,971.09 (The total cost of the loan is $2,971.09 and doesn’t exceed his total return expected after the investment which is (($3000 x 12 months) – $2,971.09 ))
Should he apply for a loan? Yes.
Hiring new staff members could be expensive, but a loan can be of help
Ana García and her husband own a consulting firm. Their monthly net profits are $4,500 and they are considering to borrow in a loan $15,000 to hire new staff for their firm.
They expect to get at least $7,000/month after the investment.
They decided to use a business loan calculator to make projections of the value of the business loan and here are the results:
- Monthly Payment: $440.62 (which is good because doesn’t exceed the 80% of their monthly net profit, which is $4500)
- The total cost of the loan:
- Total interest paid: $6,150.00
- Closing Fee: $1,048.5
- Funding Fee: $0
- Documentation Fee: $0
- Cost of the Loan: $7,198.50 (The total cost of the loan is $7,198.50 and doesn’t exceed their total return expected after the investment which is ($7000 x 12 months) – $7,198.50)
Should they apply for a loan? Yes.
Getting a business loan could make a difference in your business, but also it’s important to know the real cost of getting it and if they are going to be able to comfortably make monthly payments.
Are you considering applying for a small business loan but not sure it if will be worth it? Then, using a business loan calculator before approaching a lender is a smart choice for you.
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