There are many different factors to consider when calculating business loan repayments, which can ultimately influence your decision on what lender to choose.
You’ll find trustworthy lenders, such as Lumi.com.au, purposefully disclose everything you need to know about how to calculate business loan repayments This is designed to help you find the best loan for you and your situation. You will also find that Lumi recognises the importance of flexibility and speed when small business owners are applying for a loan and that Lumi streamlines the process for you, to ensure you spend more time running your business.
What factors influence Business Loan Repayments?
Should you seek a quick method of loan repayment calculation here are a few pieces of information to consider:
The loan principal
Understand how to calculate the principal. The 'principal' is the amount of funds you want to borrow; you can’t calculate business loan repayments without the principal amount.
The interest rate
Most small business loans use a fixed interest rate. The lender will disclose this to you before you agree to the loan. It is worthwhile noting that the better your financial position, the lower the rate tends to be. In essence, the interest rate is the main component of the cost of your loan.
The loan term
Another essential piece of information when you calculate business loan repayments is the loan term.. The length of time to repay the loan makes a difference to the overall cost of the loan.
With the above information, you will be able to calculate business loan repayments for your business. The total repayment amount usually consists of the principal (total amount you borrowed), the interest rate and any other fees the lender might charge such as origination fees at the start of your loan etc.
Simple Interest vs.Compound Interest
There are generally two ways of calculating interest for your business loan, for that we distinguish between Simple Interest and Compound Interest (also commonly referred to as APR).
Interest is the cost of borrowing money and is usually charged based on a yearly percentage. The main difference between simple interest and compound interest is that Simple Interest is based on the principal amount of a loan only and Compound Interest is based on the principal amount and the interest that accumulates on it during the repayment period.
Here’s the general formula to determine simple interest:
Simple Interest= P* r * t
Where P is the initial principal balance, r is the interest rate, and t is the number of time periods.
Compound Interest on the other hand shows the time value of money. That means the interest in the calculation is calculated based on the principal and interest accumulated over time.
This is the general formula for compound interest:
Compound Interest = P(1 + r)^(t) - P
Where P is the principal balance, r is the interest rate, and t is the number of time periods.
Feeling challenged? Don't worry; compound interest is more difficult to calculate and can be easily worked out by jumping onto Lumi's calculator https://www.lumi.com.au/business-loan-calculator.
Simply type in the total amount you wish to borrow, select your preferred interest rate and loan length and receive a loan repayment estimate that includes the total cost of the loan. On the other hand, if you don’t know how much want to borrow but know how much you can afford to repay each week, you can also provide your maximum weekly repayment amount, choose your preferred interest rate and loan length and you will receive an estimate of the total loan amount you might be able to borrow and a repayment schedule estimate including the cost of the loan.
·2. Additional Costs
Before you choose a lender to borrow money from, make sure to double-check what fees they charge for the loan. Transparent lenders like lumi.com.au disclose all fees and charges upfront. It’s important to check the fine print to avoid any negative surprises such as early repayment fees or late payment fees for example.
3. What Is the Purpose of Borrowing Funds?
For businesses, this usually means funds for cash flow, new equipment, or repairs. But, no matter what you use the funds for you should be able to define the increased value to the business.
Needless to say that the project should be chosen based on its capacity to improve the value of your business (e.g. more sales, better yield or more significant market share). In other words, your project should aim to enhance your capacity to improve and protect your cash flow and profit.
How Much Do You Need to Borrow?
It is impossible to request a loan or calculate business loan repayments without knowing how much you need or can afford.
Once you have established how much you need to borrow for your project, you can contact Lumi, so they can give you a clear perspective on your capacity to access the required funds, how much your repayments will be and how to calculate your loan repayments. To start, you can use Lumi's handy business loan calculator https://www.lumi.com.au/business-loan-calculator.
How Much Can You Afford To Repay? The key to a successful borrowing request is getting the repayments right. That means looking at the amount you need to borrow against what your current cash flow is
It is essential that you know how much money your business is generating, your current level of outgoings, and the business's net profit. This will tell you how much you have leftover to cover loan repayments.
Important tip: when you calculate business loan repayments, don’t forget to consider any additional revenue that is likely to be generated when you use the funds you are seeking to borrow. This can make a significant difference to the business's productivity, how you calculate business loan repayments and your application's success.
For example, let's say you know that your business improvement (e.g. new technology) needs $100K to be implemented. With this information, you will also have the ability to calculate how much more cash flow and margin you will generate with the new business improvement. And with these projections, you will see that the business can comfortably pay the loan in 12 months.
Great! You are now ready to start the conversation with www.lumi.com.au. The good news is, there is a strong possibility that the required funds could be in your account in less than 24 hours.
Final Thoughts When Calculating Business Loan Repayments
Once you have evaluated all of the above, you can chat to www.lumi.com.au and make your application. The process is fast and easy, with excellent customer support at each step of your journey.
Before the phone call, it can help you if you calculate business loan repayments with the Lumi calculator, found here: https://www.lumi.com.au/business-loan-calculator. By running the numbers through Lumi's online calculator, you will likely find it much easier to have a conversation with a Lumi small business loan specialist; it will help you to be comfortable with the amount you are asking for and feel more confident that you can afford to repay it.
Don’t forget, Lumi.com.au is a leading online lender with a great reputation for lending to small businesses. Use the tools to help you calculate business loan repayments and secure the finance you need. Check with us today; you will be pleased with the results.