To make an informed decision about a loan, business owners and managers must understand how much their monthly payments will be. A loan calculator can help you do just that. You can get a good idea of your monthly payments by inputting the principal amount of the loan, the interest rate, and the number of months in the repayment period. This can help you budget for your loan and avoid any surprises down the road.
What is a loan calculator, and how does it work?
A loan calculator is a simple tool that managers can use to estimate how much a loan will cost. To use a loan calculator, you enter the loan amount, interest rate, and term into the calculator. It will then calculate the monthly payment for the loan. A loan calculator can be a valuable tool for businesses considering a loan. By entering different loan amounts, interest rates, and terms into the calculator, companies can compare other loans and determine which is best for their needs. We can also use loan calculators to estimate the total cost of a loan (the total interest we will pay over the loan term). This can help understand whether or not a particular loan is affordable.
How to estimate your company’s monthly loan repayment
Estimating your company’s monthly loan repayment is crucial to financial planning. By understanding your loan terms and employing a tool like Excel, you can calculate your monthly payment and develop a clear budget to avoid surprises down the road.
To estimate your monthly loan repayment, start by entering the loan amount, interest rate, and loan term into an Excel spreadsheet. Then, you can either use the PMT function or calculate the monthly payment manually with the following formula:
Where:
- A is the monthly repayment amount
- P is the initial loan principal amount
- Rm is the interest rate per period (usually, we have the annual interest rate, which we divide over 12 to arrive at a monthly interest rate)
- N is the number of periods for repayment (loan term), usually in months
Remember that if your repayments are, for example, every quarter, you must use a quarterly interest rate.
This will calculate the fixed monthly payment for your loan. Be sure to include any additional fees or charges in your estimate.
Once you have calculated your monthly loan repayment, you can use this information to develop a budget and understand how much cash flow your business will have each month. Estimating your loan repayments is essential to thoughtful financial planning for your business.
You can also look at our article on How to Create Debt Amortization Schedules in Excel to learn more about loan repayment schedules.
Analyzing the sensitivity of the monthly loan repayments
When taking out a loan for your business, you must be aware of the sensitivity of your monthly loan repayments. That is, how much your repayments will change if there is a change in the interest rate.
However, if you have a fixed-rate loan, you don’t need to worry about this – your repayments won’t change regardless of interest rates.
So, when considering taking out a loan for your business, ensure you are aware of whether the facility has a fixed interest rate or not. It could make a big difference to your cash flow.
Additionally, if the total borrowing cost is too high, you can consider reducing the term of the loan (e.g., repaying it in 4 years instead of 5). You will pay larger monthly installments, but the overall cost of the loan will decrease.
Suppose your monthly installment is too high and causes cash flow concerns. In that case, you can also consider expanding the loan term to pay smaller amounts over a more extended period and reduce the monthly strain on the company’s cash flows.
How to prepare for a potential increase in interest rates
For businesses, an increase in interest rates can significantly impact loan payments and other forms of debt. As a result, it is vital to be ready for a potential rise in rates. One way to do this is to try to lock in loan rates at their current levels. This can be done by refinancing existing or new loans with fixed terms for the loan’s life. Another option is to adjust your budget to have the extra cash flow to make higher loan payments if necessary. Taking these steps can help protect your business from the potentially damaging effects of rising interest rates.
Using Magnimetrics’ Debt Financing Calculator template
If you’re a business owner, you know that taking out a loan is a big decision. And, if you’re considering debt financing, you want to be sure you’re getting the best deal possible. That’s where Magnimetrics’ Loan Calculator template comes in. This free template can help you analyze loan offers and find the right one for your business. Enter basic information about your loan, including the loan amount, interest rate, and repayment terms. Then, our calculator will show you how much your loan will cost over time. It will also provide you with valuable sensitivity analysis. With this helpful information at your fingertips, you can make the best decision for your business.
Prep Step: Get Your Free Magnimetrics Account
To use the Loan Calculator template (and many more we are adding), you need to have a Magnimetrics account. Registration is free (no credit card required).
So why wait? Get started today for free and see how Magnimetrics can help you translate your financial data into meaningful insights.
Step 1: Import the Debt Financing Calculator Template to your Projects
You can find the Debt Financing Calculator template in the Start With a Template section on the Dashboard.
You can also create a New Project and select the template from the drop-down menu.
Either way, please select the option to Copy Over Sample Data so that all necessary data points are available in your project.
Step 2: Adjust the inputs on the Assumptions tab
After the app imports the Debt Financing Calculator template, it will take you to the Project Dashboard. Head over to the Assumptions tab and adjust the following values:
- DEBT_INTEREST: The annual interest rate for your loan facility
- DEBT_PRINCIPAL: The principal amount of the loan
- SENSITIVITY_INTEREST_STEP: The up/down percentage step the app will use to calculate sensitivity towards interest rate changes
- DEBT_PERIODS: The term of the loan in months
- SENSITIVITY_PERIODS_STEP: The up/down number of periods step the app will use to calculate sensitivity towards different loan term lengths
Step 3: Run the Debt Financing Calculator report and
Now that you have all the necessary data, go to the Reports tab and Launch the Debt Financing Calculator report.
The app will show the executed report:
- A summary of the loan calculator’s purpose
- The loan details (the ones we entered in the previous step)
- An estimate of the monthly repayment
- The total amount due for the loan term
- The cost of debt (or interest) due for the loan term
- Sensitivity analysis towards changes in the interest rates or the loan term.
If you are feeling adventurous, go to Edit Report to look under the hood, get more familiar with how the calculations are displayed, or adjust the report to your liking.
Conclusion
Small business loans can be a great way to finance your business. But before you take out a loan, it’s essential to understand the impact of a loan on your company’s cash flow. Magnimetrics’ Loan Calculator is a great tool to help you review loan offers and have a more informed decision-making process. This will help you find the right loan for your business and make sure you can afford the repayments.
So why wait? Get started today for free and see how Magnimetrics can help you translate your financial data into meaningful insights.
Dobromir Dikov
FCCA, FMVA
Hi! I am a finance professional with 10+ years of experience in audit, controlling, reporting, financial analysis and modeling. I am excited to delve deep into specifics of various industries, where I can identify the best solutions for clients I work with.
In my spare time, I am into skiing, hiking and running. I am also active on Instagram and YouTube, where I try different ways to express my creative side.
The information and views set out in this publication are those of the author(s) and do not necessarily reflect the official opinion of Magnimetrics. Neither Magnimetrics nor any person acting on their behalf may be held responsible for the use which may be made of the information contained herein. The information in this article is for educational purposes only and should not be treated as professional advice. Magnimetrics and the author of this publication accept no responsibility for any damages or losses sustained as a result of using the information presented in the publication. Some of the content shared above may have been written with the assistance of generative AI. We ask the author(s) to review, fact-check, and correct any generated text. Authors submitting content on Magnimetrics retain their copyright over said content and are responsible for obtaining appropriate licenses for using any copyrighted materials.
