Business Loan Calculator Formula

Understand the math behind the business loan calculator. Each variable explained with a worked example.

Use the Business Loan Calculator

Formulas Used

Monthly Payment

monthly_payment = monthly_rate > 0 ? loan_amount * monthly_rate * pow(1 + monthly_rate, num_payments) / (pow(1 + monthly_rate, num_payments) - 1) : loan_amount / num_payments

Total Amount Paid

total_paid = (monthly_rate > 0 ? loan_amount * monthly_rate * pow(1 + monthly_rate, num_payments) / (pow(1 + monthly_rate, num_payments) - 1) : loan_amount / num_payments) * num_payments

Total Interest Paid

total_interest = (monthly_rate > 0 ? loan_amount * monthly_rate * pow(1 + monthly_rate, num_payments) / (pow(1 + monthly_rate, num_payments) - 1) : loan_amount / num_payments) * num_payments - loan_amount

Variables

VariableDescriptionDefault
loan_amountLoan Amount(USD)100000
annual_rateAnnual Interest Rate(%)8
loan_term_yearsLoan Term(years)5
monthly_rateDerived value= annual_rate / 12 / 100calculated
num_paymentsDerived value= loan_term_years * 12calculated

How It Works

How to Calculate Business Loan Payments

Formula

M = P x [r(1+r)^n] / [(1+r)^n - 1]

Where:

  • M = Monthly payment
  • P = Loan principal
  • r = Monthly interest rate (annual rate / 12 / 100)
  • n = Total number of payments (years x 12)

    • This standard amortization formula calculates equal monthly payments that cover both principal and interest over the loan term.

    Worked Example

    A $100,000 business loan at 8% annual interest for 5 years.

    loan_amount = 100000annual_rate = 8loan_term_years = 5
    1. 01Monthly rate = 8% / 12 = 0.6667% (0.006667)
    2. 02Total payments = 5 x 12 = 60
    3. 03Monthly payment = $100,000 x [0.006667 x (1.006667)^60] / [(1.006667)^60 - 1]
    4. 04Monthly payment = $2,027.64
    5. 05Total paid = $2,027.64 x 60 = $121,658.40
    6. 06Total interest = $121,658.40 - $100,000 = $21,658.40

    Ready to run the numbers?

    Open Business Loan Calculator