Business Loan Calculator
Estimate your monthly business loan payment and annual debt service.
How is a business loan payment calculated?
Your monthly business loan payment is based on the loan amount, the interest rate, and the repayment term, using a standard amortization formula. Each fixed monthly payment covers a mix of principal and interest, with interest making up a larger portion of the payment early in the loan and shrinking as the balance is paid down.
Understanding annual debt service
Annual debt service is simply your monthly payment multiplied by twelve, representing the total amount your business must pay toward this loan each year. Lenders often compare your annual debt service to your business's net operating income (a ratio called the Debt Service Coverage Ratio, or DSCR) to determine whether your cash flow can comfortably support the loan.
Choosing the right loan term for your business
A shorter term means higher monthly payments but less total interest paid, which can be appropriate if the loan funds a short-term need like inventory or working capital. A longer term lowers the monthly payment and preserves cash flow, which may make more sense for financing long-lived assets like equipment or real estate, though it increases the total interest cost over the life of the loan.
Frequently Asked Questions
What is annual debt service?
Annual debt service is your total loan payments due over a year — your monthly payment multiplied by twelve. Lenders use this figure to assess whether your business's income can comfortably cover its debt obligations.
What credit score do I need for a business loan?
Requirements vary by lender and loan type, but many traditional lenders look for a personal credit score of 680 or higher along with strong business financials. Online and alternative lenders may approve lower credit scores at higher interest rates.
What's the difference between an SBA loan and a conventional business loan?
SBA loans are partially guaranteed by the Small Business Administration, which allows lenders to offer lower rates and longer terms than many conventional business loans, though the application process is often more involved. Conventional loans can close faster but may carry higher rates or shorter terms.
How does loan term affect my business loan payment?
A shorter term increases your monthly payment but reduces total interest paid, while a longer term lowers the monthly payment and preserves cash flow at the cost of more interest over time. Match the term to what the loan is financing — shorter for working capital, longer for long-lived assets.
What is a debt service coverage ratio (DSCR)?
DSCR compares your business's net operating income to its annual debt service; a ratio above 1.25 is often considered healthy by lenders. A DSCR below 1.0 means your income doesn't fully cover your debt payments, which can make approval difficult.
Should I get a term loan or a business line of credit?
A term loan provides a lump sum with fixed payments, well-suited for a specific one-time investment like equipment or expansion. A line of credit offers flexible, revolving access to funds, better suited for managing cash flow gaps or recurring short-term needs.
Can I pay off a business loan early?
Many business loans allow early repayment, which can save on total interest, but some lenders charge prepayment penalties. Always check your loan agreement for prepayment terms before assuming you can pay it off without a fee.
How much can my business afford to borrow?
A common approach is to ensure your projected annual debt service stays comfortably below your net operating income, often targeting a DSCR of 1.25 or higher. Use the calculator above with different loan amounts and terms to see how the payment fits your cash flow.