What this calculator does
This business loan calculator converts an advance, an interest rate, and a term into the figures that determine whether borrowing is workable: the monthly repayment, the total interest across the term, and the total cost. It also produces an amortisation schedule showing how each repayment divides between capital and interest.
The monthly repayment answers whether the business can service the debt. The total interest answers whether it should take it on. Those are separate questions, and a facility can pass the first comfortably while failing the second — which is exactly the trap this calculator is meant to expose.
When to use it
Use it before approaching a lender rather than after an offer arrives. Working backwards from a repayment your cash flow can absorb tells you what size of facility to ask for, which is a stronger position than accepting what is offered and hoping the numbers work out.
It is also the tool for comparing structurally different offers — a secured facility at a lower rate over seven years against unsecured lending at a higher rate over three. Monthly repayments can look similar while total costs diverge by tens of thousands. And it is the tool for deciding not to borrow, by showing plainly what the interest buys.
Understanding the inputs
Loan amount is the capital advanced. Where an arrangement fee is added to the facility rather than paid up front, include it here, since it accrues interest exactly as the rest of the balance does.
Enter the annual interest rate as quoted. If the facility is variable and tracks Bank of England base rate, model the current rate and then run a scenario two points higher to see the repayment you would face if rates move. Term is the repayment period in years — unsecured business lending commonly runs one to five years, while facilities secured on commercial property can extend considerably further.
How is this calculated?
Monthly Payment = P[r(1+r)^n]/[(1+r)^n-1]. Total Interest = (Monthly × n) − Principal.
A worked example
A company borrows £120,000 at 9.5 percent over 7 years. The monthly repayment comes to roughly £1,961, total repayments reach about £164,750, and total interest is around £44,750 — a little over a third of the amount advanced.
Shorten the same facility to 4 years and the repayment rises to roughly £3,015 while total interest falls to about £24,700, saving around £20,000. The extra £1,054 a month is only affordable if the business can cover it in its weakest quarter rather than its strongest, which is the test worth applying before choosing the shorter term.
Limitations and assumptions
This models a fixed-rate, fully amortising facility with level repayments. It does not handle variable rates, capital repayment holidays, balloon payments, or invoice finance and merchant cash advance structures, where cost is expressed as a factor rather than an interest rate and is not directly comparable.
It also excludes arrangement fees, valuation and legal costs, and early repayment charges, which together commonly add one to three percent. Use it to compare scenarios and stress-test affordability, then rely on the lender's own illustration and fee schedule for the binding figures before you sign anything.
Common Questions
- What rates should I expect on a UK business loan?
- High street bank term loans for established, profitable businesses tend to be the cheapest option, priced over Bank of England base rate. Challenger banks and alternative lenders sit above that, and unsecured lending costs more than secured. Time trading and demonstrable profitability move the rate far more than shopping around does.
- What is the Growth Guarantee Scheme?
- It is the British Business Bank programme that succeeded the Recovery Loan Scheme, providing accredited lenders with a government guarantee on a portion of eligible small business lending. The borrower remains fully liable for the debt — the guarantee protects the lender, not you — but it can unlock facilities that would otherwise be declined.
- Should I take a longer term to reduce repayments?
- Only if the shorter repayment genuinely will not fit. A longer term lowers the monthly figure but raises total interest considerably, and leaves a charge over your business for years longer. Compare both terms above and look at the total interest before treating affordability as the only consideration.
- Will I have to give a personal guarantee?
- For most small company lending, yes. Directors are routinely asked to guarantee company borrowing, which means personal assets sit behind the debt despite limited liability. Personal guarantee insurance exists and is worth pricing. Where the loan is secured on property or equipment, the guarantee may be capped rather than unlimited.
- What is a debenture and should I worry about one?
- A debenture gives the lender a fixed and floating charge over the company's assets, registered at Companies House. It is standard for secured lending. The practical consequence is that it constrains future borrowing, because a second lender will rank behind the first, so consider it before granting one for a modest facility.
- What costs are excluded from this calculation?
- Arrangement and facility fees, valuation costs on secured lending, legal fees, and any early repayment charge. Together these commonly add one to three percent of the advance. When comparing offers, ask for the total cost of credit rather than only the headline rate, since fee structures vary widely between lenders.
- Is the interest tax deductible?
- Interest on borrowing used wholly for business purposes is generally an allowable deduction against profits for corporation tax, though capital repayments are not. Larger companies should be aware of the corporate interest restriction rules. Your accountant should confirm the treatment for your circumstances rather than relying on the general position.
- Should I finance equipment through a term loan?
- Usually not. Asset finance secured against the equipment itself typically carries a lower rate and does not consume the general borrowing capacity you may need later for stock or wages. Keeping working capital facilities free for working capital is a discipline that pays off during a difficult quarter.
- How much debt can my business safely carry?
- A common guideline is that annual debt service should not exceed roughly 75 to 80 percent of operating profit, giving a coverage ratio of 1.25 or better. Above that level a single weak quarter moves from inconvenient to genuinely threatening, particularly where a personal guarantee is in place.