Question 1

How is a business loan payment calculated?

Accepted Answer

A standard business loan amortizes the principal across the term at a fixed periodic rate. The formula is M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the principal, r is the periodic rate (annual rate divided by payments per year), and n is the total number of payments. Each payment has a shrinking interest portion and growing principal portion. This calculator also supports extra principal payments, which accelerate payoff by reducing the balance that interest is computed against in every subsequent period.

Question 2

What's the difference between APR and interest rate?

Accepted Answer

The interest rate is the periodic cost charged on the principal. The APR (annual percentage rate) bundles the interest rate with mandatory fees — origination, packaging, underwriting — and expresses the all-in annualized cost. Regulation Z (Truth in Lending) requires lenders to disclose APR on most consumer credit; on business loans, APR is best practice but not always required. If you only see an interest rate, ask the lender for the APR before comparing offers. Two loans at the same rate can have very different true costs.

Question 3

What is an origination fee?

Accepted Answer

An origination fee is an upfront charge the lender collects to underwrite and fund the loan. On SMB term loans it is typically 1–6% of the principal, either deducted from the funded amount at closing or added to the balance. Either way, it raises the effective APR. Our calculator treats the fee as paid out of pocket (you receive the full principal) and reports it as a separate `totalFees` line so you can see its impact independent of interest.

Question 4

How do extra payments affect a business loan?

Accepted Answer

Every dollar of extra principal reduces the balance that tomorrow's interest is charged on. On a 10-year loan at 9.5%, adding $500 per month to a $250K loan shortens payoff by about 26 months and saves roughly $35K in interest. The savings compound because the interest saved in month 1 reduces the balance going into month 2, and so on. Check your loan agreement for prepayment penalties — SBA 7(a) loans have specific prepayment rules for terms of 15+ years; conventional term loans frequently have none, but read the fine print.

Question 5

What's a typical interest rate for an SMB loan in 2026?

Accepted Answer

As of early 2026, conventional SMB term loan rates run roughly 8%–14%, with strong-credit borrowers in the 8%–10% range and higher-risk or shorter-duration products (merchant cash advances, short-term loans) often above 20% APR when fees are included. SBA 7(a) rates are tied to Prime plus a lender spread — with Prime at 8.5% and typical spreads of 2–2.75%, SBA 7(a) pricing sits around 10.5%–11.25%. These ranges move with the Fed funds rate; always verify against current lender term sheets.

Question 6

Is a shorter or longer term better?

Accepted Answer

Shorter term means higher payments but less total interest and a faster return to clean balance sheet. Longer term means lower payments and more cash on hand each month, but more interest paid in total — often materially more. The right choice depends on your cash flow volatility. If your revenue is seasonal or early-stage, the flexibility of a longer term with no prepayment penalty lets you keep payments low during lean months and pay extra during fat ones — effectively having it both ways.

Question 7

Are business loans tax-deductible?

Accepted Answer

Interest paid on business loans is generally tax-deductible as a business expense (IRC §163), provided the loan proceeds are used for legitimate business purposes and the interest is actually paid. Principal repayments are not deductible. Origination fees are typically amortized and deducted over the life of the loan, not taken as an immediate expense. Always confirm with your CPA — rules differ for owner-guaranteed debt, related-party loans, and loans where proceeds mix business and personal use.

Question 8

Term loan vs line of credit — which is better?

Accepted Answer

A term loan is right when you need a known amount for a known purpose with a predictable repayment schedule — equipment, buildouts, acquisitions. A line of credit is right when the need is uncertain or recurring — smoothing AR gaps, seasonal inventory, opportunistic inventory buys. Lines typically have variable rates, no fixed payment, and interest only on the drawn balance. Term loans are usually cheaper per dollar of capital deployed, lines are more expensive per dollar but cheaper when you don't end up using most of the capacity.

#	Payment	Principal	Interest	Balance
1	$3,234.94	$1,255.77	$1,979.17	$248,744.23
2	$3,234.94	$1,265.71	$1,969.23	$247,478.51
3	$3,234.94	$1,275.73	$1,959.20	$246,202.78
4	$3,234.94	$1,285.83	$1,949.11	$244,916.95
5	$3,234.94	$1,296.01	$1,938.93	$243,620.93
6	$3,234.94	$1,306.27	$1,928.67	$242,314.66
7	$3,234.94	$1,316.61	$1,918.32	$240,998.05
8	$3,234.94	$1,327.04	$1,907.90	$239,671.01
9	$3,234.94	$1,337.54	$1,897.40	$238,333.46
10	$3,234.94	$1,348.13	$1,886.81	$236,985.33
11	$3,234.94	$1,358.81	$1,876.13	$235,626.53
12	$3,234.94	$1,369.56	$1,865.38	$234,256.96

Business Loan Calculator

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Frequently asked questions

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What this means

Worked example

Frequently asked questions

How is a business loan payment calculated?

What's the difference between APR and interest rate?

What is an origination fee?

How do extra payments affect a business loan?

What's a typical interest rate for an SMB loan in 2026?

Is a shorter or longer term better?

Are business loans tax-deductible?

Term loan vs line of credit — which is better?

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