Check out this helpful Business Loan Calculator

Business loan calculator

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Business Loan Calculator

A major error made by business owners is using their available funds for all tasks. Your cash flow may be severely impacted by this, especially if your organization experiences an unanticipated setback. It might be wiser to use a company loan to fund your expansion goals.

As of December 2019, the country had more than 1.22 million small enterprises, according to the Business Development Bank of Canada. Many of these businesses have benefited greatly from the financial support provided by the Canadian Small Business Financing Program.

Applying for a small company loan in Canada should therefore be straightforward, especially if you use a planning tool like a small business loan calculator. The business loan calculator will help you estimate monthly payments if you need a loan, whether it’s to finance a major buy or pay for an unexpected need. You can then set your budget using the information the business loan calculator provided.

How a business loan calculator works

For a start-up business looking for a business loan, a business loan calculator is an essential tool. As a result, you will have the opportunity to save time and effort. This is accomplished by allowing you to estimate the monthly payment amount needed to cover the principal and interest on your upcoming loan.

It is significant to note that it is occasionally referred to as an amortization calculator for business loans. The tool is the same.

  • To determine your monthly payment and total repayment amount during the course of your loan, follow these steps:
  • In the box labeled “Loan amount,” enter the sum your company wishes to borrow.
  • Enter the loan repayment period for your company under Loan terms.
  • List the interest rate if your loan has no additional fees. Alternatively, if the lender charges an origination, closing, or yearly fee, provide the APR.
  • Select Calculate.
  • Examine your monthly payment and the whole interest cost.

To come up with an appropriate amount, you will need to obtain some estimates from financial service providers. The time-specific lending environment, your credit history, the type of business, and the collateral all affect interest rates. Alternatively, as a starting point, you can use approximated numbers and an estimated outcome.

The business loan calculator will produce an answer once these values have been entered. You can use this to see how much money you’ll need to set aside each month to pay back your small business loan’s capital as well as interest.

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Terms to understand when checking out business loans

When calculating the business loan, there are some terminologies you need to know. Read up on the following terminology used in business loans:

  • Loan amount: The amount that your company intends to borrow.
  • Loan term: The number of years your company has to repay the loan.
  • Fixed-rate: This is the initial interest rate applied to a loan during the initial stage. If the interest rate won’t fluctuate over time, disregard the fixed rate.
  • Fixed period: The time frame during which the business loan’s initial fixed rate is in effect.
  • Ongoing rate: Your obligation to pay this interest rate will last the duration of the loan.
  • Upfront fees: These are any one-time, upfront payments incurred during the application procedure. Application fees, origination fees, and processing fees are examples of upfront costs. A legitimate lender will only execute payment once your cash has been dispersed and never before.
  • Fees: These are the added recurring costs that you incur monthly or yearly.
  • Early repayment fee: This fee, also referred to as a prepayment penalty, is what lenders may impose if you pay off your loan early.
  • Specified monthly repayments: The amount per month that you would pay during the fixed period at the initial interest rate.
  • Ongoing monthly repayments: This is the amount that you would pay on a monthly basis at the existing or continued interest rate.
  • Total repayments: The sum of the principal, interest, and any other payments you would make toward that loan.

How to Get a Business Loan

Verify your eligibility

When asking for a business loan, you should know your personal credit score, the length of your firm, and your annual revenue. Scores of at least 670 are frequently required by traditional banks and lenders recognized by the U.S. Small Business Administration. Online banks are therefore always lenient in their requirements. Additionally, many lenders demand that you have been in operation for at least one or two years and can demonstrate yearly revenue of $50,000 to $250,000.

Determine your finance needs

Most lenders would like to know the reason behind the decision to take out the loan. If you’re applying for a business loan, it’s likely that you need the money to launch your company, finance ongoing operations, or expand an existing one. Based on your intended outcome, the best financing instruments like Term loans and SBA loans can be implemented.

Review available business loan options

When it comes to selecting a lender, you have a few choices: You have the option of using an online lender or a conventional lender like a bank or credit union. Traditional lenders frequently have more affordable offerings despite having stricter qualifying standards. Online lenders typically have more lenient criteria and faster funding timeframes, but they also have more expensive possibilities.

Assemble the required documents

Before submitting your application, ask your lender what paperwork is needed. Making these documents ready in advance can facilitate a more straightforward approach. You’ll probably be required to submit your company plan, personal and business tax returns, bank statements, financial statements, and business legal documents.

Present your application

Once your paperwork is in order, you can submit your application for the loan that will grant you the most favorable conditions given your particular circumstances. Since there are different kinds of lenders and loans, the total duration of the approval of a loan depends on the lender and the kind of loan you are contracting.

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Types of Business Loans

There are many different kinds of business loans and lending alternatives, so it’s important to understand them all before choosing the right one for your company. These popular financing options are available for your company to use.

Terms loan

Business term loans normally provide a lump sum of money that must be used for your company however you see fit and is paid back on a monthly basis. Their stipulations aren’t as extensive as SBA loans, but they nevertheless offer a sizable sum of money. For instance, terms and loan amounts of up to 10 years and $500,000 or more are typical.

Term loans can be used by business owners for a variety of things. You can utilize the money, for instance, to pay for working capital requirements, regular operational costs, purchases of goods or equipment, or to settle an outstanding business debt.

SBA Loan

This type of loan is beneficial to business owners who require are in need of money to expand their enterprises. Most SBA loans are provided by lenders who have been approved by the SBA and are supported by guarantees covering up to 85% of the loan amount.

In other words, if you can’t make your loan payments, the government will pay the lender the guaranteed sum. However, the SBA demands a personal guarantee as security from each individual who owns at least 20% of a corporation. This implies that if you don’t pay, the SBA may take possession of your personal property to make up for its losses.

Line of Credit

A business line of credit allows borrowers access to a certain amount that they can draw against in the future rather than providing a big sum of cash upfront. They are frequently revolving, which means that as long as you make payments and don’t go over your credit limit, your credit line will replenish for a certain amount of time. It takes up to 5years.

Lenders often provide periods and credit limitations of up to five years and between $1,000 to $250,000. Consider a business line of credit as a rainy day reserve that you can utilize to pay for ongoing bills, quick projects, or unforeseen charges.

Invoice Factoring

Although it is a financing choice, invoice factoring is not a loan in the strictest sense. Businesses can sell their outstanding bills to a factoring company at a discount instead of getting paid in full upfront. In most cases, you’ll pay a factoring fee of up to 5% and get an initial advance of 80% to 95% of your bills. When your clients pay their invoices, which normally takes between 30 and 90 days, the factoring provider is paid.

For companies with customers who are other companies, invoice factoring often works best. Since these clients typically don’t pay in full upfront, invoice factoring can help you get access to quick cash to aid with working capital requirements, daily operational costs, and other business expenditures.

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Merchant Cash Advance

MCAs (merchant cash advances), like invoice factoring, aren’t regarded as loans. Because they allow you to borrow money against future sales, MCAs are frequently the ideal option for companies that deal with a high volume of credit and debit card transactions.

MCA lenders can deliver cash in as little as 24 hours and with limitations ranging from $5,000 to $200,000. However, the cost of this sort of business financing is considerable; you can anticipate factor rates of 1.2 to 1.5 of your total advance. If your total advance is $70,000 and your factoring rate is 1.4, for instance, you would be responsible for $28,000 in fees ($70,000 x 1.4), for a total repayment of $98,000.

Either set up daily or weekly withdrawals based on an estimate of your monthly earnings, or refund your MCA depending on a percentage of your typical monthly sales.

MCAs are frequently viewed as a dangerous form of financing due to the hefty charges that go along with them. Before relying on an MCA, you should weigh all of your options.

How to reduce the cost of a business loan

There are several methods you may use to lower the long- and short-term costs of financing your business. These include:

  • Reduce the loan period: A shorter loan term implies that debt won’t accumulate as quickly, but it will raise your monthly payment.
  • Pay off other loans on time: A smaller overall debt balance and a longer track record of timely payments will also help you save money.
  • Provide collateral: In addition to a personal guarantee, backing your loan with business assets reduces the lender’s risk and may result in a better offer for you.
  • Prequalify with several lenders: Each lender will have a separate set of requirements that will determine the size, interest rate, and terms of your business loan. Finding a lower-cost loan may be aided by prequalifying with many lenders.
  • Enhance your credit: Since personal credit scores are often taken into account by business lenders rather than company credit ratings, doing so can help you qualify for a reduced rate.

Things to check when choosing a business loan

This should be the first thing to consider while seeking a small business loan. Many people rush their calculations and don’t complete them correctly because they are so eager to receive funds and start a business.

The business loan calculator comes in handy here. A portion of your expenses will be easier for you to predict. You might find the following factors helpful when selecting your lender.

The duration of the loan

This is the time you are expected to pay off your debt. Typically, payments happen once a month. The length and frequency of payments will depend on the arrangements you agree to with your lender.

Once more, the period will be entered into our business loan calculator to assist you to determine how long it will take to repay the loan.

Consider the time frame in terms of both the months and the years you are committing to. Sometimes a period of time may seem shorter when expressed in terms of months than when expressed as a yearly total.

The flexibility of the lender

Is your lender going to be understanding if you make a payment a bit late? When selecting the best lender for you, knowing that you have some negotiating power over the terms might significantly impact your decision.

Lenders frequently apply sanctions for late payments. You’ll benefit later on if you select a lender who is aware of the pressures and difficulties facing small or start-up businesses and develop a relationship with your financial institution.

What do you need to qualify for a business loan

In order to get authorized for a business loan, the majority of banks will need the following fundamental components from you:

A registered business

Banks will check to verify if your business is registered or incorporated before approving you for a loan. The government allows sole proprietorships, partnerships, and other types of enterprises to register without having to form an entity.

To a freelancer or independent contractor without a recognized business, business loans will not be granted. The Business Development Company only provides loans to Canadian-based businesses. Owners must be of legal age in the province or territory where they currently reside. Additionally, to qualify for a loan, the organization must be a for-profit business established to make a profit.

A bank account that bears your business name 

The account must be in the same name as your company, whether it is a personal or commercial bank account. This is an important requirement to get verified and eligible for a business loan in Canada.

A minimum of 24 months of operation and income generation

You need to have been in the company for 24 months or longer to qualify for the majority of loans. You must present a plausible market and sales potential while your company is just getting started. It is also crucial to have experience or expertise in your industry and provide references from people you know personally or who can vouch for your credit. Apart from these, to show that you have invested your money sensibly, and provide a strong business plan to be eligible for BDC financial support.

A good credit score

A bank will consider two factors before approving your request for a business loan. These are your credit rating and the business credit bureau report.

So, therefore, before meeting with your banker, make sure you have these materials and have examined them so you’ll be prepared for any questions they may have.

The most crucial criterion for your application for loans under $350,000 is that you have a solid personal credit score. In actuality, the only factor considered at BDC for loans under $100K is the credit score.

Company financials

For larger loans, banks will often ask to see your financial records to assess your ability to pay back debt. In the absence of those, you must at the very least present your tax returns.

They’ll also request financial forecasts outlining your anticipated monthly cash flow for the following 12 months.

Supporting documents

For larger business loan applications, a number of required documents are required, such as marketing and production plans, financial projections, and financial statements. These all assist in convincing the bank that your business will survive. Thanks for checking out our business loan calculator.

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June 29, 2022
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FAQs about our
Business Loan Calculator

Have a different question? Contact us today.

How much do I have to deposit for a business loan?

Your required down payment will vary based on the type of loan you apply for. Depending on the loan type and purpose, some loans have no down payment requirements while others demand deposits ranging from 10% to 30% of the loan amount.

What's the amount I can borrow to purchase a business?

A company acquisition loan, with loan amounts ranging from $5,000 to $5 million, is often necessary if you’re planning to purchase a business.

What is the term length of a business loan in Canada?

Term lengths for business loans can range from three months to twenty-five years. What terms you have access to will depend on the sort of loan you open. For instance, short-term loans often have periods of three to six months, whereas SBA loans might have terms of up to 25 years.

What guarantees do I need to offer?

The majority of lenders on the market base their loans on an asset. They might examine a structure, determine its worth, and lend you money based on a portion of that evaluation. They will consider your earnings and expenses before granting you a loan without requiring you to provide collateral based on your profitability. You’ll be able to borrow more money as a result to expand your business.

Can a salaried person apply for a business loan?

Only those earning a salary and having a legally established business are eligible to qualify for a business loan. While managing start-up businesses, many people continue to work.

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