As an entrepreneur, you know that in order for your business to expand, you need to spend money. It makes sense that before you commit to a loan you’ll want to know how much interest you’ll pay during the life of the loan, your monthly payments, and closing costs.
Maybe you wish you had a magic wand to find out what the future holds or to know what the business loan will cost before you complete an application. Wouldn’t that be marvelous?
Actually, you don’t need a wand, you use this small business loan calculator powered by Camino Financial to find out the costs in a few minutes. Here’s an example of how the owner of a furniture store used this handy business tool to calculate whether a small business loan was a good idea for his business.
Hugo: An Immigrant with a Dream
By growing up around carpenters, Hugo López learned from an early age how to make furniture.
He immigrated to the U.S. in 2008, and by 2013 he had started a small business that employed several people. He marketed his custom-made furniture to designers and contractors within his community.
As his business expanded, he took on a huge project but needed capital. Another business owner suggested that he should use a small business loan calculator to see if he could afford loan payments before contacting a lender.
He planned to borrow $25,000, which covered increased costs for materials and labor. Hugo estimated he would make an additional $1,000 per month in net profit above what he already earns. After this first loan, Hugo plans to build a showroom to display his handicrafts for sale.
By establishing credit with this initial loan and making timely payments, in the future he should be able to borrow larger amounts at lower interest rates.
How Do Business Loan Calculators Work?
The online calculator allows you to enter the loan amount and to select payments terms between 24-60 months and a desired monthly interest rate. Once you click on “calculate”, the screen shows pertinent information, like closing fees, monthly payments, and total interest paid.
Then you can clear the calculator to start over and input different figures. You’ll know instantly the associated costs of the loan.
Before making a decision, you should be able to answer yes to these two questions.
- Are monthly payments of less than 80% of the monthly net profit?
- Is the total return expected after the investment more than the total cost of the loan?
Let’s go back to Hugo. If he borrows $25,000 over a period of 48 months, he’ll get these costs:
- Closing fee: $1747
- Monthly payment: $775
- Total interest paid: $12,159.00 calculated at 1.75% per month
- Total loan costs: $38,947
- Total estimated net profit: $48,000
Hugo can answer “yes” to the two questions because the loan’s monthly payment is less than 80% of monthly net profit and he will earn about $9,053 during the four-year period. Hugo decided to apply for the loan because the numbers indicated it’s a safe investment.
A Business Loan Calculator Can Answer Your Questions
It’s normal to have doubts when you’re deciding whether a loan is right for your business. Having questions means you’re a good money manager and want to make sure monthly payments are comfortable for your business’s cash flow.
Just like Hugo, you can make an informed decision beforehand and crunch the numbers in advance. In the privacy of your home or office, you can use a business loan calculator to find out the real costs of getting a loan.
It always feels good to be in control of your finances, especially before you ever approach a lender.