Example: $100,000 term loan
At 11% for 5 years, the monthly payment is about $2,174 and total interest is about $30,450. If the lender charges a 3% origination fee, you only receive $97,000 but still repay the full $100,000, which raises the true APR to about 12.3%.
Compare offers on APR, not rate
Lenders advertise in different ways: interest rates, factor rates, or a flat fee. Converting everything to APR is the only fair way to compare. Ask every lender for the APR, the total repayment amount, and any prepayment penalty.
Before you borrow
- Check cash flow: make sure the payment fits even in a slow month. Many lenders look for a debt service coverage ratio of at least 1.25.
- Match the term to the purpose: short-term needs like inventory suit short loans; equipment or property can justify longer terms.
- Consider SBA loans, which often have lower rates and longer terms than online lenders.
Working out the return on what you will buy? Use the ROI calculator. For pricing, see the profit margin calculator.
Last reviewed October 2026.
Frequently asked questions
How are business loan payments calculated?
Most term loans use a standard amortization formula: the same monthly payment covers interest on the remaining balance plus part of the principal. This calculator uses that method and shows a full yearly schedule.
What is an origination fee?
An origination fee is a one-time charge, often 1% to 5% of the loan, that the lender deducts from the money you receive. You still repay the full loan amount, so the fee raises your true cost. The calculator shows the effective APR including the fee.
What is the difference between interest rate and APR?
The interest rate is what the lender charges on the balance. APR (annual percentage rate) also includes fees, so it is the better number for comparing offers. Two loans with the same rate can have very different APRs.
Do all business loans work like this?
No. Merchant cash advances and some online loans use a factor rate and take daily or weekly payments, which can make the true APR much higher. SBA and bank term loans usually work like the standard monthly loan modeled here.
How long are typical business loan terms?
Short-term loans may run under 2 years, bank term loans 3 to 10 years, SBA 7(a) loans up to 10 years for working capital and up to 25 years for real estate.