Quick answer: A 200,000 business loan at 8% over 36 months costs 6,267.27 a month; with a 2% fee (4,000) taken upfront, the real APR is 9.38% and the total cost is 29,621.83.
How it's calculated
The payment uses the standard amortization formula M = P·r ÷ (1 − (1 + r)^−n) on the full loan amount, with r the annual rate ÷ 12.
An origination or arrangement fee is paid at the start (or deducted from the money you receive). You repay the full loan but have the use of less, so the real rate is higher. The APR is the rate i that makes the net amount equal to the present value of the payments, found numerically (the actuarial method of US Regulation Z, Appendix J), times 12.
The shorter the term, the more a fixed fee adds to the APR: the same 2% fee on a 12-month loan gives an APR of 11.82%. Islamic business finance (Murabaha, Ijara, Tawarruq) quotes a profit rate; the maths is the same. Compare offers with the APR calculator.
Worked examples
- 200,000 at 8%, 36 months, 2% fee: M = 6,267.27, APR 9.38%
- Same loan over 60 months: M = 4,055.28, APR 8.86%
- Same loan over 12 months: M = 17,397.69, APR 11.82%
Frequently asked questions
What other costs should I count?
Add any fees that the lender requires: valuation, legal, insurance or guarantee fees. Include them as part of the fee percentage to get the full APR.
Is the quoted rate flat or reducing?
Some business finance in the Gulf is quoted as a flat rate. A flat rate is charged on the original amount for the whole term and is much more expensive than the same reducing rate; convert it with the loan and Murabaha calculator.
Can I get a government-backed loan?
Many countries have guarantee programs for small businesses, such as Kafalah in Saudi Arabia and the SBA in the US. Ask your bank which apply.
Why is the APR higher than the loan rate?
Because the fee is taken upfront, you receive less than you repay on. The APR includes that fee, so it shows the real yearly cost.
How much payment can my business afford?
Compare it with your monthly cash flow, not your profit. Many lenders look for cash flow of at least 1.25 times all debt payments.
Should I choose a short or long term?
Match the term to what you are buying. Short terms suit stock and working capital, and longer ones suit equipment that will earn money for years.