How business loan payments are calculated
A term loan is repaid in equal payments that cover interest and principal. Lenders that collect weekly or every business day divide the yearly rate by the number of payments a year.
i = yearly rate ÷ payments per year (12, 26, 52 or 260)
n = years × payments per year
Worked example
$100,000 at 9% over 5 years:
| Payments | Number | Each payment | Total interest |
|---|---|---|---|
| Monthly | 60 | $2,075.84 | $24,550.13 |
| Weekly | 260 | $477.95 | $24,266.90 |
| Every business day | 1,300 | $95.54 | $24,198.85 |
SBA 7(a) loans
The SBA guarantees 7(a) loans made by banks and other lenders. According to the SBA, the maximum 7(a) loan is $5 million. Rates are pegged to the prime rate or an optional peg rate, and the SBA caps variable rates at the base rate plus a spread that depends on the loan size:
| Loan amount | Maximum variable rate |
|---|---|
| $50,000 or less | Base rate + 6.5% |
| $50,001 to $250,000 | Base rate + 6.0% |
| $250,001 to $350,000 | Base rate + 4.5% |
| Over $350,000 | Base rate + 3.0% |
The SBA lists maximum maturities of 25 years for real estate, and 10 years or less for working capital and for equipment (longer if the equipment's useful life is). Enter today's base rate from your lender under "SBA 7(a) rate cap check" to compare your quote with the cap. Fixed-rate caps are published separately by the SBA and aren't checked here.
Factor rates and merchant cash advances
A factor rate is a multiplier: with a factor of 1.3 on $50,000, you pay back $65,000. That $15,000 sounds like 30%, but if it's repaid in daily payments over six months, the cost per year is far higher. The converter treats the payback as equal payments and finds the yearly rate the same way an APR is worked out for a loan. In this example it's about 109.28%.
Limitations
- Fees such as SBA guarantee fees, packaging fees and origination fees aren't included.
- Many cash advances take a percent of daily card sales, so the payments and the time to repay vary. The APR shown assumes equal payments over the time you enter.
- "Every business day" assumes 260 payments a year (5 a week). Holidays shift real schedules a little.