Typical small business term loans run 6–60 months. Fees are often 0–5% of the amount.
Year-by-year amortization
| Year | Principal paid | Interest paid | Balance left |
|---|
How the payment is calculated
Most term loans use a standard amortizing formula: Payment = P × r ÷ (1 − (1 + r)−n), where P is the amount borrowed, r is the monthly interest rate (annual rate ÷ 12) and n is the number of monthly payments. Early payments are mostly interest; later payments are mostly principal, which is why the table above shows interest shrinking each year.
Look past the monthly payment
A longer term lowers the monthly payment but raises total interest. Before choosing, compare total cost of the loan (interest plus fees) across two or three terms. If you can comfortably afford a shorter term, it is almost always cheaper.
What lenders look at
- Time in business — many lenders want 1–2 years of history.
- Revenue — monthly deposits on bank statements.
- Credit — personal and, increasingly, business credit scores.
- Debt service coverage — whether cash flow covers the new payment, usually by 1.25× or more.
Read our guide to small business funding options to compare term loans, lines of credit, equipment finance, government-backed loans and grants.