SBA 7(a) Loan Payment Calculator: Monthly Payment and Total Interest

Follow these steps, then check your result against a spreadsheet payment function:

1. Convert the annual rate to a monthly rate by dividing by 12.
2. Set the number of months: years times 12.
3. Compute the payment: principal times monthly rate, divided by one minus (one plus the monthly rate) to the power of negative months.
4. Multiply the payment by the number of months for the total paid, and subtract principal to see total interest.

In this example, a $250,000 loan at 11 percent over 120 months has a monthly rate of about 0.917 percent and a payment of about $3,444. In this example, total paid is about $413,250, so interest is about $163,250. If your rate were 10.5 percent instead, the payment falls to about $3,373, or $70 less a month, so a half point of rate changes the bill less than the term does.

Term is the bigger lever. In this example, a $500,000 loan at 11 percent over 25 years has a payment of about $4,901 a month, which is why long terms are used for real estate.

Ask the lender to give you each of these in writing before you rely on your estimate:

• Interest rate and whether it's fixed or variable: SBA sets maximum rates, generally tied to a base rate plus a spread that depends on loan size and term, and variable rates adjust over time.
• Term: SBA 7(a) terms are generally up to 10 years for working capital and equipment and up to 25 years for real estate.
• Guaranty and other fees: SBA charges an upfront guaranty fee on the guaranteed portion, and lenders may add packaging or closing costs. The schedule changes, so confirm current numbers.
• Prepayment terms: some longer-term loans carry prepayment fees in the early years.
• Collateral and guarantees: if you own 20 percent or more of the business, you generally must sign a personal guarantee, and lenders may require collateral. See the SBA personal guarantee explained.

Add fees that are financed into the loan amount, since you pay interest on them.

Test it before you apply. Lenders look at debt service coverage: cash flow available for debt service divided by annual debt payments. A ratio above 1 means you cover the payment, and lenders usually want a cushion.

Say your annual payment is $41,325 (12 times $3,444) and your sales are $1,000,000. In this example, debt service is about 4.1 percent of sales. Margins matter: Damodaran's US data show average EBITDA margins of 5.4 percent for grocery and food retail and 15.65 percent for business and consumer services¹. That same payment would absorb most of a grocer's margin and a modest part of a service firm's.

Use the requirements checklist for documents, and a debt service coverage ratio calculation if you want the full test.

A longer term lowers the monthly payment but raises total interest, and a shorter term does the opposite. Run two or three scenarios before choosing:

• Shortest term you can carry comfortably, which minimizes interest.
• A middle case, which balances payment and cost.
• The longest term available, which gives the lowest payment but the highest total interest.

If you may repay early, check for prepayment fees, since paying early can save interest. Also consider your revenue's seasonality: a payment that's easy in June may be hard in January, so look at your worst month.

SBA 7(a) loans typically offer lower rates and longer terms than merchant advances or revenue-based financing, but they need more paperwork and time. If you need money in days and can pay a higher price, other products exist, and comparing them by total cost matters. See revenue-based financing versus SBA 7(a) loans, buying a business with an SBA loan and refinancing SBA 7(a) loans.

Also compare with venture debt in Pipe, Capchase and Mercury if you run a SaaS company. Before you sign, ask your accountant to review the terms, since loan agreements include covenants and default provisions that matter as much as the rate.