Being smart and savvy are two hallmarks of successful business owners. They ask questions similar to this one asked by Jeff Bezos, the founder of Amazon:
The common question that gets asked in business is, ‘Why?’
That’s a good question, but an equally valid question is, ‘Why not?’
You might ask yourself if business loans are the way to go because you don’t want to take on debt. However, to grow your business exponentially, you need more capital.
So as Jeff Bezos would recommend, why not decide whether you can get a loan before contacting a lender? A way to do that is to use a financial tool called a business loan calculator.
Some small business loans become financial headaches because they’re expensive and come with inconvenient terms.
For example, some people don’t make sure they’ll be able to repay a loan because they don’t know upfront how much the interest will amount to.
For example, payday loans are short-term loans with an annual percentage rate of 398%. Most people can’t repay these loans. Of course, this is just an extreme example, most small business loans have decent interest rates, but you still need to make sure you know how much your debt will be.
As a borrower, you need a way to obtain answers to common financial questions like “Will I be able to pay my loan?” “How much will I end up paying each month?” “Will a loan help or hurt my finances?”.
And that’s exactly how a business loan calculator can help you.
You can enter the desired loan amount, repayment terms, and interest rate into the calculator. The digital tool calculates the total interest you pay, the monthly payment amount, and the closing fee.
At any time, you can reset the calculator and enter new information to come up with a comfortable loan amount and repayment terms.
Applying for and getting approved for small-business loans can be difficult, the more prepared you are, the better. And most importantly you need to calculate better before you are going to apply. The business loan calculator helps you make smart financial decisions. But in order to invest wisely, follow these tips whenever you use a business loan calculator.
- Make sure the monthly payments don’t exceed 80% of your monthly net profit. If your net profit is $1,000, your monthly payment shouldn’t exceed $800.
- The total cost of the loan shouldn’t exceed the total return after the investment. For instance, if you recognize a $10,000 profit on a 36-month loan with total loan costs of $7,000, your return on investment exceeds the total costs.
- Make sure you can afford the loan. A business loan calculator’s purpose is to help you figure out how much you can comfortably afford. By having financial data to review, you can narrow down your choices. If you can’t borrow money, you can find ways to cut down on expenses.
- Map out a financial strategy in months or years. The calculator helps you make plans for the next 24 to 60 months. By using the financial tool, you can create what-if scenarios to determine whether to repay the loan in 2 to 5 years. As an example, your budget may be able to handle a higher payment for 24 months so you can use the money to purchase inventory and equipment and launch new product lines.
No one likes surprises, especially financial ones. A business loan calculator removes any doubt as to whether you should apply for a loan. Within a few seconds, the calculator crunches the numbers so you don’t wonder whether applying for a loan is a good idea. Why not use the financial tool today and plan your business’s next steps toward success.