The Small Business Loan Calculator can be used when applying for business loans to help estimate the maximum amount a lender is willing to lend based on 3 criteria; security available, ability of the business to repay, and the equity or net worth of the business.
The Excel file available for download below, will help you to carry out your own loan calculations.
SME Loan Calculator Instructions
The calculator is used as follows.
1. Security
A lender will normally lend 1:1 against available security value. The lender will apply a discount percentage to each security offered, and the total discounted value must be at least equal to the amount of the loan.
As can be seen in the business loan calculator example, the market value of the assets is 140,000. Due to the discount % applied by the lender, the security value and therefore the maximum loan is only 67,000.
2. Ability to repay
The amount of the loan will be limited by your ability to repay, i.e how much cash do you have available to make the monthly repayments.
A good estimate of cash flow can be obtained by taking your accounts profit before tax and adding back interest and depreciation to arrive at a revised profit figure. Additionally this is referred to as EBITDA. The lender will then require a certain debt service cover in its calculations.
In the business loan calculator example, the cash flow (EBITDA) is 16,000 and the lender requires cover of 2.5 (i.e. the cash flow must be at least 2.5 times the loan repayments). So in this case the amount available for loan repayments is a maximum of 6,400, and on a loan repaid monthly with an interest rate of 6% and a term of 5 years, the maximum loan would be 27,600. The loan calculation uses the Excel Present Value function (PV) and is done for you in the download sheet
3. Equity or Net Worth
A lender will have a maximum allowed gearing ratio which it will use in it’s calculations. The gearing ratio is calculated as the ratio of Debt/Equity. In the business loan calculator example the lender has a maximum ratio of 60% meaning the debt must not be greater than 60% of the equity. Based on the equity of the business taken from the accounts, the maximum loan in this case is 60% of 50,000 = 30,000.
Looking at these three limitations, the lender is likely to see the ability to repay as the limiting factor and restrict the maximum loan to 27,600.
Small Business Loan Calculator Download
The small business loan calculator is available for download in Excel format by following the link below.
Users use this accounting template at their own risk. We make no warranty or representation as to its accuracy. Additionally we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of an accounting format that you might use. It is purely illustrative. This is not intended to reflect general standards or targets for any particular company or sector. If you do spot a mistake in the template, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.