What is a Short-term Business Loan Calculator?

A short-term loan is a kind of business loan. The main difference between a short-term business loan and a term loan (the most common kind of business loan) is that a short term loan has a different fee structure. Instead of interest, short term loans come with a one-time fee that is repaid together with the principal. Therefore, you must use a separate calculator to estimate your APR, loan payments, and other metrics.


What is a short term business loan?

A short term business loan is a kind of business loan where the borrowing fee is determined by a factor rate instead of the interest rate. Typically, short-term loans are used for working capital, hiring, equipment purchase, training, and seasonal business expenses.

The factor rate is a multiplier utilized to determine the total repayment. The repayment incorporates the loan fee, which is known as a fixed fee since it does not accumulate over time like interest. For instance, if you have a factor rate of 1.1 and you are borrowing $10,000, you will have to repay  $11,000: $10,000 multiplied by 1.1 = $11, 000. For most short-term business loan calculators, you can either enter the total repayment or the factor rate. You will obtain the same results with both numbers.

In spite of the short term moniker, some business loans of this kind might have quite long term lengths. Traditionally, short term loans come with term lengths that are eighteen months or less; however, some companies are beginning to provide loans with terms of up to three years- or even longer. When you are not sure, remember that if the loan has a fixed term length and a factor rate, then it is a short term loan. This rule applies even though the loan has a long term length. Traditionally, a short term loan is repaid each weekday; however, some lenders require payment every week or per month. Payments are fixed, which indicates you will be paying the same amount each payment period.


What is a short term loan calculator, and how do you use it?

A short term business loan calculator is a tool used to estimate periodic payments, total repayment amount, APR, and anything else a borrower will need to make an informed borrowing decision when considering and comparing short term loan offers. Are you feeling confused?

Here is a short guide to all the calculator outputs and inputs.

Calculator input

Payback amount or factor rate (select one based on the information you have; both will give you the same results)

  • Factor rate: This is the multiplier utilized to determine the payback amount. This number must be expressed in decimal (i.e., 1.12), and not in percentage.
  • Payback amount: This is the total amount you have to repay to the lending institution, including the fixed-rate and the loan amount. This number is written in dollar amounts.
Loan amount

The amount of money you are borrowing and the origination fee. This number is written in dollar amounts.

Repayment frequency

How often you make payments. Repayment frequency can be weekly, daily, or monthly (daily repayments refers to each weekday).

Origination fee

This is the amount that is subtracted from your loan amount before your lender sends the funds to you. Some lenders might term this fee as an administration fee, a closing fee, or something else. This number must be expressed as a percentage.

Number of payments

Generally, this is the total number of payments you will make over the life of the loan. This number will vary based on your repayment frequency. Based on your payment frequency, you will make this many payments in a year:

  • 12 payments, weekly
  • 26 payments, bi-weekly
  • 52 payments, weekly
  • 260 payments, daily
Maintenance fees

These are fees that are charged on an ongoing basis. Most lenders do not charge fees of this kind; however, short term business loan calculators have this option just in case. This number is written in dollar amounts.

Calculator output

Periodic payment

This the amount of your monthly, bi-weekly, weekly, or daily monthly repayment.

Total repayment

The total amount you have to repay to your lender includes the original borrowing amount and all maintenance and origination fees.

Effective APR

The approximated annual percentage rate (APR) on your loan. This number could provide you with an idea of the rate of borrowing if your loan had an interest rate.

Cents on the dollar

The total amount you have to pay in fees for every dollar borrowed.

Funding cost

This is the total amount you are paying in fees. This number does not incorporate the borrowing amount; however, it does include the miscellaneous fees and origination fee. It is simple to assess different loan options with this information- whether you compare lending institutions or choose a twelve or eighteen-month term. Using a short term business loan calculator, you will see the real cost of funding. Usually, borrowers are concerned with the monthly or weekly payment and if or not they have sufficient cash on hand to cover the expense. Whereas this is important, it is only part of the big picture. With a short term business loan payment calculator, you can spot the lending program best suited to your individual needs.

Comparing and evaluating loan offers

If you have more than one business loan offer on the table, comparing each loan’s terms can make it easier to decide the best option for you. The calculator will give you all the information you require to determine whether a loan is right for you. Below is a short primer on how to use the calculator outputs to compare loan offers. 

The true rate of borrowing

The effective annual percentage rate would give you an idea of your APR ould if you carried interest. This number can be applied to understand the rate at which you are repaying the loan and compare your offer to business loans with interest rates. Note if your effective APR is high, it is as a result of you paying the money back at a very fast rate. It is not necessarily that you are paying back a lot of money. To understand how much money you are paying, you have to look at the true cost of borrowing (it is explained below).

Periodic payments

The periodic payment can approximate how much you will be paying each payment period. You can apply this information to determine if your business can sustain repayments. Contrarily to merchant cash advances, short-term loans come with fixed payments, so they will not fluctuate with your cash flow.

True cost of borrowing

Typically, the last three numbers- cents on the dollar, total repayment, and the funding cost- tell you the true cost of borrowing. The financing cost informs you how much you will pay in fees, plus any maintenance fees, the origination fee and fixed fee you might have. And the total repayment shows you how much you will repay in total, including the borrowing and financing costs. When it comes to the cents on the dollar, it is the total amount you will pay in fees for every dollar you borrowed. This is a simple process number that assists in elucidate the cost of borrowing. It is useful for comparing the total costs of different loans, even though they have different borrowing amounts.


Steps to reduce short term loan costs

Below are steps to assist you in reducing short term loan costs

  • If you think you are going to miss a payment, talk to your lender about it in advance.
  • Try to make minimum payments on time every other month. You will avoid late fees and increase your credit score.
  • Schedule automatic payments. If you like to make payments manually, you can set a calendar reminder, so you never miss or forget a payment.
  • Identify where your lender stands on early payment. Some lenders will provide you a modest discount for paying off your loan early, whereas others might adopt prepayment penalties. Before you rush to make advance payments, request your lender about any discounts and potential penalties to your short term loan.

Is a short term business loan the best finding option for my business?

Now that you have learned how to calculate short term loan interest and have determined what your loan will cost, it is time to evaluate if it is the best funding option for your business. Like the name suggests, a short term loan is paid off much faster than a traditional term loan. The shortened structure has its consequences- some bad and some good. In some situations, short-term loans can be the right type of funding for a business. Access to cash is essential for any small business owner. And if you are confident that what you are using the short-term financing will pay profit in the end, then short term debt is worth the expensive debt.

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