Monthly payment formula
The standard loan amortization formula is M = P × r × (1 + r)^n / ((1 + r)^n − 1), where P is principal, r is the monthly interest rate (APR / 12), and n is the total number of months. The calculator runs this formula and builds the full amortization schedule showing how much of each payment goes to interest versus principal.
Early in the loan, most of your payment is interest. As the balance shrinks, more of each payment is principal. The chart above visualizes this shift clearly — it is why paying extra principal early in a loan saves so much more interest than extra payments at the end.
Typical business loan rates in 2026
- SBA 7(a) loans: 10.5–13% APR (prime + 2.75–4.75%), up to 25 years for real estate, 10 years for equipment and working capital.
- Traditional bank term loans: 7–12% APR for established businesses with strong credit.
- Online lenders (Kabbage, OnDeck, BlueVine): 12–45% APR, faster approval, shorter terms (6–36 months).
- Equipment financing: 8–20% APR, secured by the equipment itself.
- Business lines of credit: 10–22% APR, revolving, pay interest only on drawn balance.
- Merchant cash advances: effectively 40–100%+ APR — avoid unless there is no alternative.
Lower rates require established revenue history (2+ years), strong personal credit (700+), and often a personal guarantee. New businesses typically start at the high end of these ranges.
What the term length does to total cost
Longer terms lower the monthly payment but raise total interest paid. A $100,000 loan at 8% for 3 years has a $3,134 monthly payment and $12,810 total interest. The same loan stretched to 7 years has a $1,559 monthly payment but $30,958 total interest — nearly 2.5× the interest cost. The right term depends on cash flow: pick the shortest term your monthly cash flow can support without strangling the business.
Should you take out a business loan?
Use our ROI calculatorbefore committing. A business loan only makes sense if the assets or growth funded by the loan produce a higher ROI than the loan's cost. Buying a $50,000 machine at 10% interest that generates $20,000 of additional profit per year is a great deal — a ~40% ROI on the investment, net of interest. Borrowing to cover ongoing operating losses is almost always a mistake; you are buying time, not building value.
The personal guarantee trap
Nearly every small business loan requires a personal guarantee. That means if the business fails, the lender can come after your personal assets — house, retirement accounts, bank accounts. An LLC protects you from customer lawsuits, not from the guarantor agreement you signed. Before taking on more than you can personally absorb, make sure the loan is really necessary and the business plan supports repayment.
Prepayment and refinancing
Most SBA and bank loans allow prepayment without penalty after the first year. Online lenders and merchant cash advances often have origination or prepayment fees that can eat any savings. Before refinancing or paying off early, check the fine print on the specific loan. Running the numbers through this calculator with different interest rates and terms is the fastest way to see whether refinancing makes sense.
Interest-only and balloon loans
Commercial real estate loans sometimes offer interest-only payments for the first year or two, then amortize. Balloon loans require a large lump-sum payment at the end of the term. Both lower monthly cash needs upfront but shift risk to the future. Only use these if you have a specific plan for the balloon payment (refinance, sale, major revenue event).
How to actually qualify
- Personal credit: aim for 680+ for most banks, 650+ for online lenders.
- Time in business: 2+ years strongly preferred; 6+ months is minimum for online options.
- Revenue: most banks want $150K+ in annual revenue. Online lenders start at $50K.
- Documentation: 2 years of tax returns, 12 months of bank statements, profit and loss, balance sheet, and often a business plan.
- Debt service coverage ratio (DSCR): banks want your EBITDA to cover 1.25–1.5× the debt service. Our cash flow calculator helps you check this before applying.
Alternative financing to consider first
Loans are not always the right answer. For short-term needs, a business line of credit gives you flexibility without paying interest on money you do not use. For equipment, leasing often beats buying in cash flow terms. For growth capital, SBA loans are almost always cheaper than online options. For very new businesses, a microloan through a nonprofit CDFI can be faster and friendlier than a bank loan.
After you take the loan
Set up automatic payments from your business checking account so you never miss a payment. Track the loan in your accounting software as a liability and book interest expense monthly. Update your runway calculator to reflect the new debt service; many businesses see their runway shrink after a loan because the monthly payment eats into cash faster than the new capital extends runway. Plan for the payment before you sign.