There is a lot of hype lately around topics like entrepreneurship, freelancing, and other forms of making money by ‘being your own boss’, yet most of the blogs and articles that discuss this matter tend to focus on how to generate ideas and launch ventures without addressing some of the most important hurdles that new business owners face when they start their journey.
In this regard, polls conducted by various research firms have found that a lack of resources is at the top of the most common reasons for startups to fail, which means that one key to lifting a business off the ground is knowing how to raise capital.
With the rise of financial technology companies, online loans have become a suitable alternative for businesses seeking to obtain funds for their operations, yet, before you move forward in the process of applying for one, you should estimate the cost of taking out one of these loans by using a business loan calculator like the one designed by Camino Financial.
If you have no idea how these calculators work, the following article will explain everything you should know about them and how you can use them to your advantage before and during the process of shopping around for a business loan.
How does a business loan calculator work?
A business loan calculator uses information provided by the user to estimate the cost of borrowing a particular credit instrument.
The data required to use this tool includes the amount of the loan, the annual percentage rate (APR), and the repayment period.
Based on that information, a business loan calculator will estimate the total cost of borrowing the loan, the monthly installment you will be paying, and, in some cases, it can even tell you how much you will be paying in interest expenses and how much corresponds to principal payments in each monthly installment.
This information can be used by a business owner to analyze multiple loan alternatives before choosing the one that suits the business the most.
A few tips to take into account when analyzing loans
One thing you should keep in mind is that the cost of borrowing is not necessarily the only variable that you should look at when evaluating multiple loans.
In some cases, a loan that offers a longer repayment period can demand a lower monthly installment payment – which could be the best option for a cash-strapped business.
On the other hand, for a business that is seeking to minimize its expenditures, a shorter credit period might be more advantageous as this would reduce the total cost of borrowing.
Meanwhile, another factor to keep an eye on is the interest rate applicable to each loan.
In this regard, given that you will be comparing multiple providers, a business loan calculator can estimate the amount you will save by getting approved by the lender that offers the lowest APR.
Keep in mind that an APR is an estimation of the actual annual interest rate you will be paying after including other fees and commissions that are often imposed by lenders aside from the nominal interest rate applicable to the loan.
Now that you understand how a business loan calculator works, you can start evaluating multiple loan alternatives by using this tool to determine which one suits your needs the best.
You can even model multiple loan scenarios by modifying the amount you apply for, the APR offered by each different lender, and the maximum repayment period.
Based on the results you get, you can either choose the loan that offers the lowest monthly installment, the lowest cost of borrowing, or the lowest APR.