Flat rate or declining balance
Small loans are quoted in two ways. A declining-balance rate charges interest on what you still owe, so each repayment pays less interest than the one before. A flat rate charges interest on the original amount for the whole term, even though you owe less every month, so the same figure costs far more. A flat 18% is not an 18% loan.
This calculator works out both, and for a flat quote it shows the declining-balance rate that would give the same repayments, which is the figure to compare with a bank loan.
The SBA Microloan program
An SBA microloan is a smaller loan of up to $50,000 made through an SBA-approved intermediary lender; the average is about $13,000. The longest repayment term is seven years. The intermediary sets the rate, generally between 8% and 13%, and makes every credit decision. Proceeds can pay for working capital, inventory, supplies, furniture, fixtures, machinery or equipment, but not existing debts or real estate.
The calculator checks your amount and term against the $50,000 and seven-year limits, but a loan outside them can still be a perfectly good private microloan.
Worked example: $20,000 over 60 months
Take $20,000 at 10.5% on a declining balance over 60 months, repaid monthly, with a 2% loan fee taken from the cash paid out. The repayment is $429.88, so you repay $25,792.68 and the interest is $5,792.68. The fee is $400, so you receive $19,600.00, the interest and fee together cost $6,192.68, which is 30.96% of the amount, and the effective yearly rate with the fee, as a nominal rate, is 11.38%.
At the top of the program, $50,000 at 13% over 84 months with a 2% fee is $909.60 a month and $26,406.25 of interest, and still sits inside the limits.
A flat rate costs more than it looks
Some lenders and online advances quote a flat rate. $15,000 at a flat 9% over 36 months with a 2.5% fee is $529.17 a month and $4,050.00 of interest. The interest and fee together cost $4,425.00, or 29.50%, the effective yearly rate is 18.06%, and the same repayments on a declining balance would be a rate of 16.24%, nearly double the quoted 9%.
To check start-up conditions such as the equity injection, use the startup business loan eligibility calculator.
What this calculator does not tell you
It assumes level repayments, a fee and insurance taken from the cash paid out and savings returned at the end with no interest. It does not model late fees, a grace period, intermediary requirements or a variable rate, and it does not say whether a lender will approve the loan. The rate you enter is an assumption: use the rate on your agreement.
Use the right country page
This page stays in US dollars and uses US terms, with the effective yearly rate as a nominal rate. The country choices above the inputs open separate local pages. Choosing United Kingdom opens the microfinance loan calculator, in pounds. The inputs reset and amounts are not converted.
Inputs for the microloan calculator
Microloan amount
The amount you borrow, before fees.
How the rate is quoted and the rate
Declining balance or flat on the original amount, and the yearly rate on your quote.
Term and repayments
The months you take to repay and whether you pay monthly, fortnightly or weekly.
Loan fee, insurance and savings
Percentages of the amount. The fee and insurance are taken from the cash you receive; savings are held back and returned at the end.
CALCULATOR QUESTIONS
US microloan calculator questions
How much can I borrow with an SBA microloan?
Up to $50,000, through an SBA-approved intermediary lender. The average is about $13,000.
How long can I take to repay an SBA microloan?
Up to seven years. The exact term depends on the amount, the use and the lender.
What interest rate do SBA microloans charge?
The intermediary sets it, generally between 8% and 13%.
What is the difference between a flat rate and a declining-balance rate?
A declining-balance rate charges interest on what you still owe. A flat rate charges it on the original amount, so $15,000 at a flat 9% over three years behaves like a 16.24% declining-balance loan.
Why is the effective rate higher than the quoted rate?
Because fees reduce the cash you receive while you repay the full amount. A 2% fee lifts a 10.5% rate to 11.38%.
What happens when I change country?
The United Kingdom option opens the separate microfinance loan calculator, in pounds. Your inputs are reset rather than converted.