Before taking on any new credit commitment, it is vital to understand how much you will need to repay, and it’s also important that you think carefully about whether you can afford it. Therefore, you need to understand how to use a business loan calculator.
Our business loan calculator is an easy-to-use tool that gives you a good indication of how much you will need to repay. although the exact repayment amount will only be confirmed once you have been matched with a lender, and that lender has assessed your application. The precise interest rate you will be offered depends on factors such as the length of time you have been trading, the level of profit you generate, and whether you have a strong or poor credit history.
A typical business loan might be for anything between £25,000 and £800,000, so our calculator tool allows you to adjust the slider for any amount between these two figures. You then select your preferred repayment term: one, two, three, four, or five years.
Once you have done this, the right-hand side of the loan calculator shows:
- The monthly loan repayments for the selected amount and term
- The total interest payable over the term
- The total amount repayable over the term (the original loan amount plus interest)
You can then adjust the slider and/or amend the term to see what you would pay for loans of different sizes and different lengths.
For example, for a loan of £100,000 and a term of three years:
- Monthly repayments are £2,938.89
- Interest payable is £5,800
- The total amount repayable is £105,800
For a loan of £250,000 and a term of five years:
- Monthly repayments are £4,408.33
- Interest payable is £14,500
- The total amount repayable is £264,500
When you have found your ideal loan amount and term and found a repayment amount that is affordable, you can then select the Match With Lender facility on the loan calculator, which starts the process of searching more than 90 lenders to find the right loan for you.
How does a business loan work?
A business loan is a very simple arrangement. The lender advances a single sum of money, and you then repay this loan amount, plus interest, in equal monthly installments over the term of the loan.
What information will the lender require?
The lender obviously wants to know that you will be able to repay any loan it provides. In order to make a decision on your application, it is likely to ask to see:
- Proof of identity and address
- Business bank statements, perhaps for the last six months
- Your business accounts for the last two or three years (balance sheet, profit and loss account and cash flow statement)
- Your VAT returns
- A list of the business’s directors, shareholders and financiers
- Your credit report
- Any business plans for any project to be funded using the loan
Why you might want to take out a business loan:
- The application process can be very swift, with the funds possibly arriving in your account as soon as the next working day
- The loan monies can be used for any purpose, including promotion and advertising, funding new products and services, developing new premises, or taking on and training new staff
- Security for the loan is not required – it’s perfectly possible to take out an unsecured business loan
- The interest rate is likely to be fixed throughout the term, so you can budget knowing exactly what you will be paying every month
- Some loans have a payment holiday facility, so if your business goes through a tough trading period, you might be able to negotiate to repay just the interest for a limited period
- In most cases, there are no early repayment charges, so if you have the funds to pay off the loan earlier, you can easily do so, reducing the interest payable in the process
- These loans are available for all types and sizes of business, from sole traders to large corporations
Disadvantages of business loans
However, there are also some reasons why a business loan might not be right for you:
- Many lenders have tightened their criteria in recent years and are now more reluctant to lend to businesses
- The total amount repayable under a business loan, over the full term, can be significant
- All of the loan funds are provided as a single lump sum, and there are other methods of borrowing available where you can simply access the amount you need, when you need it, and then come back to access additional funds later
Get in touch with the team at Funding Bay to see if your business is eligible for a business loan.
