If a business wants to be successful, a small business loan is one of the first steps to achieve this. A working capital loan can enable a company to increase its capital, make investments and expand in order to reach new markets, increase the variety of its product line or open subsidiaries in other countries.
A business owner has to be aware of all the information about the loan, in order to not be surprised by the evolution of the markets and interest rates. A fixed interest rate is generally one of the best ways to counteract risk, as the company is less affected by the interest rates. The company can also opt for an adjustable interest rate or a variable interest rate, if they estimate the interest rate to decrease over a period. It is an approach more suited for large companies, as small business owners usually prefer a fixed interest rate, as it exempts them from estimating the market evolution. There are other costs that have to be considered when applying for a loan such as fees and commissions. One easy way to get all those figures at one and in one single place is the Business Loan Calculator. Here we’ll explain you how to use it.
Working Capital and Small Business Loans
Working capital is the cash available to finance a company’s short-term operational needs. However, sometimes a company does not have the adequate cash on hand or asset liquidity to cover daily operational expenses and, thus, will secure a loan for this purpose.
A working capital loan is a loan that is taken to finance the everyday operations of a company. Working capital loans are not used to buy long-term assets or investments and are, instead, used to cover accounts payable, wages, etc.
If you need working capital for your small business you have the option to apply for conventional loans that are offered by banks and financial institutions. The interest rates for this loan can vary, so if you have a good credit score you will pay a reduced interest rate, while if you have a bad credit score you will pay an increased interest rate. But be cautious: the vast majority of banks want to secure their loans with some sort of collateral like real estate, equipment, or other valuable business asset that you have.
As an alternative, you can turn to an online lender. Online lenders have become increasingly popular since, as opposed to banks, they offer unsecured small business loans. An unsecured business loan is a loan that requires no collateral but is rather based solely upon the creditworthiness of the small business borrower. Also, the application process with an online lender is easier as in a bank, requiring less time and paperwork.
Regardless of the type of loan, the borrower has to know all the characteristics about it in order to take an advised decision while relying on complete information. An aspect that is especially important is the annual percentage rate (APR). It is an indicator that shows the percentage of all costs of a loan in a year, including origination fees and commissions.
Calculate your Loan Repayment with a Business Loan Calculator
Borrowers have to look toward a financial institution that has a great degree of transparency and discloses all the relevant information so that there are no misunderstandings. Hidden clauses or other concealed information can be very costly, especially on the long term. Borrowers must look at the financial institution as a trustworthy business partner. If the borrower is part of the customer target group of the company, it may obtain the loan easier or with better terms. There are also financial institutions that cater to a specific ethnic group, so that members of that group have a strong reason to work with that company as it is designed to meet their requirements. Also, nowadays online lenders are a great alternative offering small business loans through a more simple process than traditional bank, and with less requirements.
A business loan calculator is a useful instrument for a borrower who wants to see the schedule of repayment. A Small Business Loan Calculator that has all the relevant information is available on the Camino Financial page and multiple parameters can be introduced for computing the monthly rate over the entire loan period. It is important for the borrower that the loan is amortized, so that the principal that has to be repaid diminishes over time. This means that even if the rate is fixed, the borrower will pay less interest and more principal as time passes. The business loan calculator supports the borrower by giving him information about the cost of the loan and payment schedule and this contributes to increased overall transparency.
Now let’s see an example to show how easy the calculator is to use. Let’s say I want to buy new technology equipment for the sum of $10,000 to do so. These are the figures I would enter in the calculator:
- Loan Amount: $10,000
- Payment Term: 24 months (you can pick a range between 24 to 60 months)
- Monthly Interest Rate: 1,25% (you can pick a range from 1 to 2,25%)
And these are the results I get from the calculator:
- Closing Fees: The amount of closing fees I’ll pay on the loan. This amount is deducted from the loan amount on the day it is funded. In my case the amount is $699.
- Total Interest Paid: The exact amount of interest that I’ll pay during the full term of the loan. The calculated interest I would pay is $1,636.80.
- Cost of the Loan: How much the entire loan will cost me, including the closing fees and total interest to be paid. The sum of both figures in my case is $2,335.80.
- Monthly Payment Amount: The amount that I’ll pay monthly for the loan. My monthly payment would be $484.87. That’s actually the key figure. Now I have to thoroughly consider if I can pay that amount monthly and if I feel comfortable doing so.
If I’m not satisfied with the results, I simply click “Reset Calculator” and start over until I get the figures I feel comfortable with. By using the calculator, I can now contact my lender comfortably and ready to start my loan application process.
Marvin writes for Camino Financial, an online lender for small business loans. Mavris has a background in finance and economics. In these fields of research he writes about theoretical topics and ideas. He also deals with cryptocurrency, consumer psychology and technological advancements in banking and financial instruments.