Business Loan Calculator
Payment, true cost and debt-service coverage on a commercial or SBA loan — including guarantee fees and a compensating balance the bank makes you leave on deposit.
Business Loan Calculator: with the default inputs, monthly payment is $3,099.64.
SBA 7(a) rates are capped at prime plus a spread; conventional term loans are priced off prime or SOFR.
SBA 7(a): up to 10 years for equipment and working capital, 25 for real estate.
SBA guarantee fees run roughly 0–3.75% depending on size and term; banks add packaging and closing fees.
Average monthly sales.
Everything except debt service — payroll, rent, COGS, owner's pay.
- Debt-service coverage ratio
- 1.61Monthly operating income ÷ monthly payment. Lenders typically want 1.25 or better.
- Effective annual rate
- 9.09%The rate on the cash you can actually use, after fees and any compensating balance.
- Cash you can actually use
- $243,750
- Fees
- $6,250
- Held on deposit
- $0
- Total interest
- $121,957
- Annual debt service
- $37,196
- Payment a 1.25 DSCR supports
- $4,000Operating income ÷ 1.25 — roughly the largest payment a bank will underwrite.
Assumptions
- Fixed rate, level monthly payments, fully amortizing over the term.
- Fees are paid at closing; the compensating balance is returned when the loan matures.
- DSCR uses monthly operating income before debt service; add back depreciation and owner's discretionary pay.
- Existing debt is not included — add it to the payment when checking coverage against a lender's test.
- Usable cash$243,75098%
- Fees$6,2503%
- Held on deposit$00%
| Year | Principal | Interest | Total paid | Balance |
|---|---|---|---|---|
| 1 | $16,582 | $20,614 | $37,196 | $233,418 |
| 2 | $18,048 | $19,148 | $37,196 | $215,371 |
| 3 | $19,643 | $17,553 | $37,196 | $195,728 |
| 4 | $21,379 | $15,817 | $37,196 | $174,349 |
| 5 | $23,269 | $13,927 | $37,196 | $151,080 |
| 6 | $25,325 | $11,870 | $37,196 | $125,755 |
| 7 | $27,564 | $9,632 | $37,196 | $98,191 |
| 8 | $30,000 | $7,195 | $37,196 | $68,190 |
| 9 | $32,652 | $4,544 | $37,196 | $35,538 |
| 10 | $35,538 | $1,657 | $37,196 | $0 |
How this is worked out
The formula
Payment: PMT = P × i(1 + i)^n ÷ ((1 + i)^n − 1), i = rate ÷ 12, n = years × 12 Usable cash = P − fees − compensating balance DSCR = (revenue − operating expenses) ÷ payment Effective rate: the i that solves usable cash = PMT × [1 − (1 + i)^−n] ÷ i + compensating balance ÷ (1 + i)^n (the held balance comes back at maturity, so it is discounted, not lost)
Open How it’s calculated above to see this worked through with your own numbers.
What you enter
- Loan amount
- A number.in dollars · 0 or more · defaults to 250000
- Interest rate
- SBA 7(a) rates are capped at prime plus a spread; conventional term loans are priced off prime or SOFR.a percentage · from 0 to 100 · defaults to 8.5
- Term
- SBA 7(a): up to 10 years for equipment and working capital, 25 for real estate.from 1 to 30 · whole numbers only · defaults to 10
- Guarantee / packaging fee
- SBA guarantee fees run roughly 0–3.75% depending on size and term; banks add packaging and closing fees.a percentage · from 0 to 15 · defaults to 2.5
- Compensating balance(under More options)
- Cash the bank requires you to keep on deposit for the life of the loan. It is money you borrowed but cannot use.a percentage · from 0 to 50 · defaults to 0
- Monthly revenue
- Average monthly sales.in dollars · 0 or more · defaults to 45000
- Monthly operating expenses
- Everything except debt service — payroll, rent, COGS, owner's pay.in dollars · 0 or more · defaults to 40000
What you get back
- Monthly paymentmain answer
- Debt-service coverage ratio
- Monthly operating income ÷ monthly payment. Lenders typically want 1.25 or better.
- Effective annual rate
- The rate on the cash you can actually use, after fees and any compensating balance.
- Cash you can actually use
- Fees
- Held on deposit
- Total interest
- Annual debt service
- Payment a 1.25 DSCR supports
- Operating income ÷ 1.25 — roughly the largest payment a bank will underwrite.
What this assumes
- Fixed rate, level monthly payments, fully amortizing over the term.
- Fees are paid at closing; the compensating balance is returned when the loan matures.
- DSCR uses monthly operating income before debt service; add back depreciation and owner's discretionary pay.
- Existing debt is not included — add it to the payment when checking coverage against a lender's test.
About this calculator
Two numbers decide a business loan. The bank cares about debt-service coverage — whether the business throws off enough cash to make the payment with room to spare. You should care about the effective rate — what the money costs once fees and any required deposit are counted. This calculator produces both from the same inputs.
Debt-service coverage
DSCR is operating income divided by debt service. At 1.0 the payment exactly consumes the cash the business generates; at 1.25 there is a 25% cushion, which is the floor most banks and SBA lenders underwrite to. Below that you are usually declined, offered less, or asked for more collateral and a personal guarantee. The payment a 1.25 DSCR supports line works the constraint backwards: it is the largest payment your current income justifies, which sets your realistic borrowing ceiling once you pick a rate and term.
Note that lenders compute DSCR from tax-return income with add-backs (depreciation, amortization, owner's compensation above market, one-time expenses) — closer to EBITDA than to net profit. Enter operating expenses before depreciation and before the owner's discretionary draw, or the ratio will read low.
Fees and the compensating balance
SBA 7(a) loans carry a guarantee fee tied to the loan size and term, and banks add packaging, closing and servicing charges. A compensating balance is different and more expensive than it looks: the bank lends you $250,000 but requires $25,000 to stay on deposit, so you pay interest on money you cannot spend. The effective-rate line prices that properly — the held cash is not lost, it comes back at maturity, so it is discounted rather than treated as a fee. In the default example, a 10% compensating balance turns an 8.5% loan into roughly 12.5%.
Reading the results
- Monthly payment amortizes the full loan, including the part you never get to use.
- Cash you can actually use is what funds the project. Size the loan from this number, not from the face amount.
- Effective annual rate is the comparison figure across offers with different fee structures.
- Total interest is the lifetime cost of the borrowing itself.
Caveats
This models a fixed-rate, fully amortizing term loan. SBA 7(a) loans are usually variable, tied to prime and adjusting quarterly — a rate rise raises the payment and lowers your DSCR at the same time. Lines of credit, equipment leases and merchant cash advances all price differently; an MCA quoted as a "1.3 factor rate" over 9 months is often above 70% APR, and no amortization model will reproduce it.
Frequently asked questions
▸What DSCR do lenders require?
1.25 is the common floor for bank and SBA term loans, meaning operating income covers the payment 1.25 times over. Commercial real estate often wants 1.20–1.35; riskier industries more. Below 1.0 the loan cannot service itself.
▸How is DSCR calculated for a business?
Net operating income divided by total debt service, using income before interest, taxes, depreciation and amortization, with owner add-backs. Include every existing loan payment in the denominator, not just the new one.
▸What does an SBA guarantee fee cost?
It is a one-time fee based on the guaranteed portion and the term — currently zero on the smallest loans and rising to a few percent on large, long ones. The SBA publishes the current schedule each fiscal year; enter your quoted figure here.
▸Why does a compensating balance raise my rate so much?
Because you pay interest on the whole loan while using only part of it. Requiring 10% on deposit means 10% of your interest buys nothing — on an 8.5% loan that works out to roughly 12.5% on the money you can actually spend.
▸Is a merchant cash advance comparable?
No. An MCA is priced as a factor on the amount advanced and repaid from daily card receipts, often equating to 40–100%+ APR. Convert it to an annualized rate before comparing it with anything on this page.
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