Business Loan Planning
Business loans provide capital for starting, operating, or expanding a business. Calculate monthly payments using the loan formula where payment equals principal times monthly rate divided by (1 - (1 + rate)^-months). A $100,000 loan at 7.5% for 5 years requires $2,003 monthly payments, totaling $120,155 with $20,155 interest.
Business loan rates typically range 6-10% depending on creditworthiness, business age, revenue, and collateral. SBA loans offer lower rates but stricter requirements. Term loans provide lump sum repaid over time, while lines of credit offer flexible borrowing. Compare APR, not just interest rate, to include all fees.
Ensure your business generates enough cash flow to cover loan payments plus operating expenses. Lenders typically want debt service coverage ratio above 1.25 (income 25% higher than debt payments). Use loans strategically for growth investments that generate returns exceeding loan costs, not just covering operating shortfalls.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Most lenders require good personal credit (680+), 2+ years in business, profitable operations, solid cash flow, and sometimes collateral. Startups need strong business plans and may require personal guarantees.
Term loans provide lump sum repaid over fixed period with fixed payments. Lines of credit let you borrow up to a limit, repay, and borrow again, paying interest only on outstanding balance.
Yes if you qualify - lower rates and longer terms than conventional loans. However, application is complex, requires extensive documentation, and approval takes longer. Best for established businesses seeking significant capital.