This calculator estimates the monthly payment, total interest and total repaid on a loan used to buy a business. Palmwick Lending, a small-business funding service in Kokomo, Indiana, provides it so buyers can test a price before making an offer. Figures it returns are estimates only; the real rate and term come from a lending partner.
What the Calculator Computes
Three inputs: the amount borrowed, an annual rate and the term. Three results: the monthly payment, the total interest over the term and the total repaid. It assumes a fully amortizing loan with equal monthly payments and no fees. It does not handle down payments, seller notes, balloon payments or fees; those steps are done by hand below.
Step 1: Work Out the Amount to Borrow
The calculator needs the amount you will borrow, not the purchase price. Subtract your down payment and any seller financing from the price first. Hypothetical figures for illustration only: a $400,000 purchase price, less a $60,000 down payment and a $40,000 seller note, leaves $300,000 to finance. Enter $300,000, not $400,000.
If the seller note has its own payment, run it through the calculator separately and add the two payments together.
Step 2: Use a Rate From a Written Quote
This site does not publish rates. Enter the rate from a partner's written quote, or try a range to see how sensitive the payment is. A business acquisition loan payment calculator is most useful for comparing scenarios: a longer term lowers the payment but raises total interest, and the total repaid figure shows exactly how much.
Step 3: Test the Payment Against the Business, by Hand
The calculator cannot tell you whether the business can afford its payment. Do that by hand. Take the business's yearly cash flow before debt payments and before the owner's pay, from the seller's records. Subtract what you will need to pay yourself. Compare what is left with twelve months of loan payments.
Hypothetical figures for illustration only: if the business produces $110,000 a year before debt and owner pay, and you need $55,000 to live on, $55,000 remains. If the calculator shows $3,800 a month, the loan costs $45,600 a year, leaving $9,400 of cushion. That is thin; a slow year or a large repair would strain it. Partners make their own coverage calculations, with their own assumptions.
Comparing Two Offers
When two partners quote different rates and terms, run both through the calculator and compare the total repaid, not only the monthly payment. A longer term with a lower payment can cost far more in total. Then add any fees listed in each offer by hand, since the calculator does not include them, and check each offer for a prepayment penalty or balloon payment.
Where to Go Next
Read how business term loans work for acquisitions, or follow the full example in buying a gas station in Howard County, Indiana. The gas stations page covers station-specific records, and more tools are on the resources page.
By Palmwick Lending · Updated