Business loan calculator

What the commercial loan calculator is working out

The repayment sum itself is ordinary amortisation, the same arithmetic a home loan uses. The balance is spread across the number of payments in the term at the periodic rate, and where a balloon is entered, that amount is taken out of the sum first so the schedule leaves it sitting there rather than clearing it.

Take an example commercial loan of $800,000 at 7% over 15 years, principal and interest, paid monthly. The repayment comes to $7,190.63. Over the full term that is $1,294,313 repaid, of which $494,313 is interest.

Weekly, fortnightly and monthly all divide the same annual cost, so switching between them changes the size of each payment and barely changes the year. On the example, monthly costs $86,288 a year and fortnightly costs $86,211. Pick the one that matches how money actually arrives in the business.

Short terms, and what they do to the repayment

The term slider here runs from one year to thirty, and most commercial facilities sit a long way down the low end of it. That single fact explains most of the difference between a business loan repayment and the home loan figure people compare it against.

Every row is the same $800,000 at the same 7%. Read the first and third rows together and the point lands: five years costs more than double the monthly figure of fifteen, and saves $343,855 in interest.

The bottom row is the home loan comparison people carry in their heads. Fifteen years costs $1,868.21 a month more than thirty, which is 35% harder on cash flow, and it takes $621,758 of interest out of the deal. Short terms hurt now and cost far less in total, which is the trade sitting behind every commercial facility.

The balloon, and the decision it books in for the end of the term

A balloon, sometimes called a residual, is an amount the facility is not scheduled to repay. The repayments are worked out to leave that figure owing on the final day rather than to clear the debt, which is why they are lower.

Say $600,000 at 7% over five years. With no balloon the repayment is $11,880.72 a month. Put a $200,000 balloon on the same facility and it drops to $9,087.15, which is $2,793.57 a month less.

That relief is borrowed, not free. Interest over the five years goes from $112,843 to $145,229, so the balloon adds $32,386, and you still owe $200,000 at the end. Total money out is $745,229 against $712,843.

1. 1

   Pay it out

   Clear the residual from cash. This is the plan a balloon is supposed to have behind it, and it wants to be a plan rather than a hope, because the date does not move.

2. 2

   Refinance it

   Roll the residual into a new facility. That is a fresh application on the day, assessed on the business as it trades then, not as it traded when the original loan was written.

3. 3

   Sell the asset

   Realistic where the balloon sits against equipment or a vehicle with a resale market. Where the residual is larger than what the asset will fetch, the shortfall is yours.

None of these are bad outcomes. What is bad is arriving at the date without having picked one, which is the position a borrower reaches when the balloon was chosen to make the repayment fit rather than to match something real.

What a commercial loan repayment calculator cannot price for you

Commercial pricing is not published and it is not fixed. It is worked out per deal on the risk in that deal, which is why two borrowers buying similar buildings with similar financials can be quoted quite differently. There is no rate card to type in here, and any site that prints one for commercial lending is guessing.

What moves the price is the security offered, the strength and consistency of the trading figures, the term, the purpose of the money and how well the file is presented. Every example on this page uses 7% because it is a round number to demonstrate the arithmetic with, not because it is available.

So put in the rate a lender has actually quoted you. If you have not been quoted yet, run the tool at two or three rates and treat the spread as your planning range rather than betting on the friendliest one.

Interest only, and what it is actually for

Switch the example $800,000 to interest only and the monthly figure becomes $4,666.67, which is $2,523.96 below the fifteen year principal and interest repayment. Twelve months of that costs $56,000 and leaves you owing exactly $800,000. The balance does not move because nothing is being repaid.

It earns its place on a working capital facility, where the money funds a trading cycle that repays it, and on a development or construction purpose, where there is no income until the project produces one. It is priced for that risk rather than as a discount. Using it to make an otherwise unaffordable facility fit is the one purpose it does not serve.

Security is what a commercial lender is really lending against

On a home loan the property is the security and there is not much more to say. On a business loan the security question is the deal. It sets the appetite, the terms and most of the price, and it is settled before anyone talks about a rate.

• Commercial property, where the type of building and how easily it re-lets matter as much as the value
• Residential property offered as security for business borrowing, which strengthens the lender's position considerably
• Directors' guarantees, which put the people behind the entity on the hook personally
• A general security agreement over the business assets, which covers plant, stock and receivables rather than real estate
• Cross-collateralisation, where two properties secure one facility and neither can be released on its own

Offering the family home usually improves the terms, because the lender's overall position is stronger. It also ties your house to the business borrowing, which is a real consequence and not a formality. Both sides of that belong on the table before you agree to it.

Which entity borrows, which entity guarantees, and whether you want the securities kept separate are structuring decisions your accountant should drive. We build the finance around what the two of you settle on.

What a commercial application actually needs

A commercial file carries more paper than a home loan and most of the work happens before anything reaches a credit team. A half-prepared file does not get declined so much as it sits, and sitting is what costs you the settlement date.

• Two years of financial statements and tax returns for each entity involved
• Interim management figures where the last year-end is now several months old
• Your ATO position, including any payment arrangement, disclosed at the start rather than found at credit
• The lease, the tenant and the term remaining, where the property is leased out
• Details of the security offered and any facilities already secured against it
• The structure: which entity borrows, which guarantees, and the directors' personal position
• A contract or written quote for whatever the money is actually funding

When a bank will not write it

Low doc and lease doc facilities exist for borrowers whose figures are not available in the form a bank wants them, and private lending exists for deals that sit outside bank appetite altogether. Both cost more than a bank facility, and for the right situation both are the difference between doing the deal and missing it. Neither is a good place to end up by accident.

Everything on this page is an estimate produced from figures you typed in. It is not an approval, not an offer, and it takes no account of your circumstances. We are brokers rather than a lender, so the useful next step is putting your actual deal in front of the lenders on our panel of more than 40 and finding out who has appetite for it.

That is the work our commercial finance team does every week, and it sits alongside our construction finance service when the money is funding a build rather than a purchase. Call us on 1300 813 113 and we will tell you where the deal sits before you commit to anything.