Business Loan Calculator
✦ Finance & MoneyUse this free business loan calculator to estimate monthly payments, total interest, and true APR for commercial loans, SBA financing, and factor-rate advances — including live Debt Service Coverage Ratio (DSCR) underwriting analysis.
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- ✓ Formula and sources shown
The formula
Business term loan payment, APR & DSCR
PMT = P × [r(1+r)^n] / [(1+r)^n − 1] | DSCR = NOI / Annual Debt ServiceP = principal (or loan + fee if fee is added); r = nominal rate ÷ periods per year; n = total periods. For factor rate advances, total payback = advance × factor rate. Debt Service Coverage Ratio (DSCR) divides annual net operating income by annual debt service; commercial banks typically require DSCR ≥ 1.25×. True APR is solved via the Reg Z actuarial method (12 CFR Part 1026, Appendix J).
Calculating it by hand
- Select your financing type: Term Loan (SBA 7(a), bank debt, equipment) or Factor Rate (merchant cash advance).
- Enter the loan or advance amount you plan to borrow.
- For term loans, enter the annual interest rate and term in years (up to 25 years for real estate).
- For factor rates, enter the quoted multiplier (e.g., 1.25×) and repayment term in months.
- Under Advanced, enter your business's Net Operating Income (NOI) to test your Debt Service Coverage Ratio (DSCR).
- Review your estimated periodic payment, true APR including origination fees, total finance cost, and complete amortization schedule.
Worked examples
SBA 7(a) 10-Year Working Capital Loan
Loan amount: $150,000; Annual interest rate: 9.00%; Term: 10 years (120 monthly payments).Origination / Guaranty fee: $3,000 (2% deducted from proceeds).Net cash received: $150,000 − $3,000 = $147,000.Monthly payment: PMT = $150,000 × [(0.0075 × (1.0075)^120) / ((1.0075)^120 − 1)] = $1,900.14 per month.Total interest over 10 years: $78,016.24; Total cost: $231,016.24.True Reg Z APR accounting for upfront fee: 9.48%.
Monthly payment: $1,900.14 | True APR: 9.48% | Total interest: $78,016.24
Short-Term Factor Rate Cash Advance (MCA)
Advance amount: $50,000; Factor rate: 1.25×; Term: 12 months (monthly payments).Total payback amount: $50,000 × 1.25 = $62,500.Total finance fee: $62,500 − $50,000 = $12,500.Monthly payment: $62,500 ÷ 12 = $5,208.33 per month.Solving actuarial APR on $50,000 financed repaid at $5,208.33/mo for 12 months yields 43.34% APR.
Monthly payment: $5,208.33 | True APR: 43.34% | Total cost: $62,500.00
Commercial Real Estate Loan with DSCR Underwriting
Loan amount: $500,000; Rate: 7.50%; Term: 20 years (240 monthly payments).Monthly payment: $4,027.97; Annual debt service: $48,335.64.Business annual Net Operating Income (NOI): $70,000.DSCR = $70,000 ÷ $48,335.64 = 1.45×.Result: 1.45× DSCR easily exceeds the standard 1.25× bank threshold.
Monthly payment: $4,027.97 | DSCR: 1.45× (meets the 1.25× benchmark) | Total interest: $466,710.67
Methodology
How business loan financing actually works
Unlike consumer debt, business loans are underwritten on your company's cash flow — the debt service coverage ratio (DSCR) — rather than personal income alone, and short-term factor-rate advances often conceal effective APRs above 40%: a 1.25 factor repaid monthly over 12 months is 43.34% under the Regulation Z method.
Read sources and limitsWhat is the difference between a term loan, an SBA loan and a factor-rate advance?
Commercial financing generally falls into three distinct categories. Conventional bank term loans offer predictable level monthly payments over 1 to 10 years for working capital or up to 20 to 25 years for commercial real estate. Interest rates depend on prime rates, borrower creditworthiness, and collateral.
Small Business Administration (SBA) loans, including the flagship SBA 7(a) and 504 programs, are government-guaranteed loans issued by participating lenders. Because the SBA guarantees up to 85% of the loan amount, borrowers receive longer repayment terms (up to 10 years for working capital; 25 years for real estate) and competitive capped interest rates, offset by an upfront SBA guaranty fee (typically 2% to 3.75%).
In contrast, Merchant Cash Advances (MCAs) and short-term revenue-based advances do not charge traditional interest. Instead, they quote a factor rate (such as 1.20× or 1.35×) applied to the initial advance amount. Repayments are deducted daily, weekly, or monthly from business receipts over 3 to 18 months.
How high is the real APR on a factor rate?
A factor rate sounds deceptively inexpensive: borrowing $50,000 at a 1.25 factor rate means repaying $62,500 ($50,000 × 1.25), which appears to be a simple 25% cost. However, because you repay the balance continuously across a short 6- to 12-month term, your average outstanding principal is only about half the initial advance.
When converted to an annualized Actuarial APR under federal Truth in Lending (Reg Z) standards, a 1.25 factor rate repaid monthly over 12 months produces an effective APR of 43.34%. Repaid weekly over 6 months, the same factor rate is an APR of 89.90%. Always convert factor rates into true APR before accepting short-term alternative business financing.
What debt service coverage ratio (DSCR) do lenders require?
The Debt Service Coverage Ratio (DSCR) is the primary cash-flow metric commercial lenders use to evaluate loan approval. It is calculated by dividing your business's annual Net Operating Income (NOI) — operating revenue minus normal operating expenses, before taxes and interest — by your total Annual Debt Service (principal plus interest payments across all business loans).
A DSCR of 1.00× means your business generates just enough cash to service its debt with zero cushion. Most commercial banks and SBA underwriters require a minimum DSCR of 1.20× to 1.25× (or 1.35× for higher-risk industries), meaning your business generates $1.25 in operating profit for every $1.00 of required debt payments.
How do origination fees change the cost of a business loan?
Origination and guarantee fees on commercial loans generally range from 1% to 5% of the total loan amount. Lenders handle these fees in one of two ways: deducting the fee from the cash disbursed (net proceeds mode), or financing the fee into the loan balance (added to principal mode).
When fees are deducted from proceeds, you receive less capital upfront while repaying the full nominal loan amount. When fees are added to principal, your periodic payments and lifetime interest increase because you pay interest on the financed fee. Comparing offers using the Reg Z APR accounts for both fee treatments on an exact, mathematically consistent basis.
Business Loan questions
What credit score and revenue do I need for a small business loan?
Traditional commercial banks and SBA lenders typically look for a personal credit score of 680 or higher, at least 2 years in business, and strong annual revenues (often $100,000+). Alternative online lenders and MCA providers may accept credit scores as low as 550 and 6 months in business, but charge significantly higher factor rates and fees.
How is an SBA loan different from a conventional commercial loan?
An SBA loan is not made directly by the government; rather, the U.S. Small Business Administration guarantees up to 85% of the loan issued by a participating lender. This federal guarantee reduces lender risk, allowing for longer terms (up to 10–25 years), lower down payments, and capped interest rates compared to conventional commercial loans.
Why is a factor rate not the same as an interest rate?
An interest rate applies only to the remaining unpaid principal balance as you pay it down. A factor rate is a flat multiplier applied to the entire original advance amount upfront. Because you continue paying the full fee while paying down the principal, the effective APR on a factor rate loan is roughly double the nominal percentage fee.
What is a good DSCR for a business loan?
A Debt Service Coverage Ratio (DSCR) of 1.25× is the standard minimum benchmark for most commercial banks and SBA lenders. This means your business generates $1.25 of net operating income for every $1.00 of required loan payments. Ratios above 1.50× are considered strong, while ratios below 1.15× face heightened underwriting scrutiny.
Can I prepay a business loan early to save on interest?
On standard amortizing term loans, extra principal payments directly reduce your remaining balance and save interest. However, with factor rate products (such as MCAs), the entire finance charge is fixed upfront upon agreement, meaning early payoff often does not reduce the total amount owed unless the contract explicitly includes an early-settlement discount.
How do origination and guarantee fees affect net loan proceeds?
When a fee is deducted from proceeds, the lender subtracts the fee before disbursing cash — for example, a 3% fee on a $100,000 loan yields $97,000 in net cash while you repay $100,000 plus interest. When a fee is added to principal, you receive the full $100,000, but your loan balance becomes $103,000, increasing your monthly payments and total interest.
How much net operating income do I need to qualify for a business loan?
Multiply the loan's annual debt service by the lender's minimum DSCR. A $500,000 loan at 7.5% over 20 years costs $4,027.97 a month, or $48,335.64 a year; at the common 1.25× minimum you need at least $60,419.55 of annual net operating income (NOI = $48,335.64 × 1.25). With $70,000 of NOI the DSCR is 1.45×. Lenders add the payments on your other business debts to the annual debt service, so include them when you test your own figures.
What APR does a 1.25 factor rate really cost?
It depends on how fast you repay, not only on the 25% fee. A $50,000 advance at a 1.25 factor ($62,500 payback) repaid in 12 monthly payments of $5,208.33 has a Regulation Z APR of 43.34%; repaid in 26 weekly payments over six months it is 89.90%. Because the whole fee is fixed up front, faster repayment raises the annual cost. Enter the factor, term and payment frequency in Factor-rate mode to see the APR for your own offer.
Source notes
Method, sources & limitations
Every figure on this page comes from the formula above applied to the values you enter. Nothing is estimated from market data, and no result is a forecast. These are the sources behind the method and any fixed figures it uses:
- U.S. Small Business Administration (SBA) — 7(a) and 504 Loan Program Terms
- Consumer Financial Protection Bureau (CFPB) — Regulation Z / TILA (12 CFR Part 1026, Appendix J)
- Federal Trade Commission (FTC) — Merchant Cash Advances & Small Business Financing Guidance
Educational information only. Results are estimates produced from the assumptions you enter, and are not financial, tax, legal or medical advice. Check anything that matters against a qualified professional and the cited sources.