What will a business loan cost?

Interested in a loan to your business? Great! A corporate loan can be the financing and push you need to grow your company. But there is a lot of things to think about before you take a business loan. In this website we will cover all of the parameters to take into account. If you have further question, please contact our customer service on phone, e-mail or social media. We love to answer your questions and help you in the right direction.

What will a business loan cost?

But first, we need to help you with some words and phrases so you, more easily, can understand what a business loan is.

If you want to read even more about small business financing, please click here and go to Quickbooks.

Amortise

Amortization is most easily described as debt repayment. Amortization normally applies to parts of a debt, but may also cover the entire amount of debt. Amortization can be done in different ways - according to an amortization plan. The most common amortization plans are:

Amortization-free business loan

It is a loan where the entire debt is repaid at the end of the term. This is not common when it comes to business loans but it can happen. No payments are made in the meantime. In 2016, a debt repayment requirement was introduced, requiring them to be amortized by at least 1% of the loan amount. Straight amortization means that the amortization portion is constant at each payment date. The expense therefore decreases over time, as the capital debt, and hence the interest rate, decreases. Often, there is a mix of the two. You have a fixed amount that you have to repay each month but if you can pay back the whole amount, it's ok. Look out for hidden costs and fees for early repayment if you plan to pay back earlier than stated in the contract. It might have a higher monthly fee or interest rate but maybe it's worth it if you know that you can pay back before the loan period comes to an end.

Annuity.

For an annuity loan, a constant amount of interest and amortization is paid together at each payment date. As the interest portion of this amount decreases over time, as the debt is settled, the amortization portion increases. You can read more examples of that here

Due to the fact that the remaining debt does not decrease linearly by an annuity loan, as the amortization increases over time, the total interest expense for the entire loan term will be slightly higher than in the case of straight-line repayment. However, this difference is small in short terms. The advantage of an annuity loan is that the expenses at the first payment dates will be less than in the case of straight amortization. This difference becomes clearer for loans with longer maturities.

Serial plan

It means that the amortization amount is continuously increasing with a certain factor for each payment date. Usually, amortization is very small at first but grows and grows at the end of the credit period. The model was common in the 1960s, 1970s and 1980s on long-term financing of multi-family houses. The expected inflation would make amortization far less noticeable in the long run. Not very common when it comes to loan to companies.

The step-by-step plan

This plan is used mostly on long-term loans, which means that the amortization increases gradually, not continuously, as on annuity loans or serial loans.

Interest (interest rate)

Interest is generally priced on loans of money. Interest is paid by someone who borrows money and is obtained by someone who lends money. When someone lends money to a bank or the like by depositing them in an account, they receive deposit interest from the bank. When someone borrows money from the bank, this will instead pay the borrowing rate. The interest rate terms, including the terms of interest rate change, are determined in advance. More and more are going into the industry of finance, sometimes as a side product. Like accounting and business loans. The have a lot of leads and data. As well as a well-known brand and identity. It makes sense to do this. Read more

  • The interest rate expresses the size of interest. It is usually stated as a percentage of the loan amount, either for a payment period or for a year. If the interest rate refers to the interest rate for a certain payment period, it is called for simple interest. If it refers to one year, it is called for annual interest. Notice here that the interest rate can not be categorized as a price when expressed as a percentage.
  • Nominal interest rate, or everyday "nominal interest rate", is the interest rate specified in, for example, a debt certificate.
  • Effective interest rate or effective annual interest rate is a common way of expressing interest rates in order to obtain comparability between different ways of calculating interest rates - much like comparative prices. It is assumed that the interest received will be re-invested and credited to the nominal interest rate. The interest rate is calculated as if the interest rate is paid once a year, and usually the interest rate base is 360/360. Therefore, if the interest is paid several times a year, the effective annual rate will be higher than the nominal interest rate (compound interest). If the interest rate is instead paid less than once a year, the effective annual rate will be lower than the nominal (for example, a multi-annual fixed rate placement). When calculating effective interest on consumer credit, you should also include fees and other costs in the calculation. This is regulated by the Consumer Credit Act and in the Consumer Agency's instructions.
  • Variable interest rate means that the interest rate on a loan is governed by the market interest rate or any index. The interest rate will therefore move up and down in line with this.
  • Fixed interest rate is the opposite of variable interest rates. At fixed interest rates, the interest rate is determined for a certain period of time, for example two or five years.
  • Lending rate, the rate at which a bank lends money to customers who accept the business loan offer.
  • Deposit rate, the interest rate the bank pays to the "borrowed" money of, that is, the interest the customer receives on insured capital. The opposite is lending rate.
  • Interest-rate basis specifies the number of days to be calculated when calculating the interest rate.

Effective interest rate

A lot of consumers want to know the effective interest rate. That's the total cost for a year. The problem with this term is that most modern and digitally smart business loans don't have loan/amortization periods on 12 months. The most common term is around 6 months. So to calculate a loans effective yearly interest rate might be misleading.

If this is not enough you can always go to Wiki and read more.

Credit mark/note

A note ("dot") that shows that someone has not taken care of their payments. The note is registered with credit reporting companies. This remark can, for example, lead to failure to borrow, apartment, telephone subscription or work. Or that you can't get a loan. So be careful with invoices, pay in time and think about your creditworthiness.

Legal person

Organization, association, company etc. who have the same rights and obligations as an individual person (physical person) and consequently can have own claims and liabilities.

Joint and several liability

Obligation for each of the parties who jointly is responsible for a cash debt to pay the full amount at the claim of the creditor. A demand that a lot of loan providers have to issue a business loan. Together with a personal bail or warranty.

Loan calculator

An opportunity for the borrower to see how much money will be paid each month on the loan, provided no change in interest occurs. You can try a business loan calculator on the most websites that offer loans to companies.

How to use the loan calculator

In this calculator you can calculate your total borrowing costs. You choose in Title 1 the amount you borrow, the interest rate, the payment rate, the loan type and the total repayment period. You can choose if you pay back with straight amortization or annuity.

In Section 2, you automatically get information from the calculator about total interest costs, total amount of interest and a table where you see each payment. You can also choose to print the table as pdf by clicking the generate pdf button.

Remember, if you need any help - just give us a call!

Finance laws

To avoid problems, please read more about finance laws.

What is a credit report?

In this part we thought about what a credit report really is. And why are credit reports made? To get it from the start, credit information is something that is being done to create a basis for a loan, for example. And it is primarily the one who lends money or gives other credits that want this information and the information about the person who will borrow money.

Credit information-aggregated information

A credit report that is an assessment of the person who may borrow money or be granted other credits is based on whether there is little or high risk for the lender or creditor. Small risk is if it is a person who previously handled his payments and his finances and it is at high risk if it is a person who has not paid his previous payments. To simplify for the creditor, there are a number of credit reporting companies that provide information about you who apply for credit to the creditor. This is called a credit report. A correct and comprehensive information helps the lender to make quick decisions and thus quickly assess the risk of giving a person credit. Then, the lender or creditor does not have to go out of risk.

What information does credit information mean?

What, then, is the information that credit information gives to lenders or creditors? What integrity do you have as a person against this information and who finds out what? Above all, one can say that a credit report focuses on economic conditions. But whatever can be included in the information from credit reporting companies, is of a personal nature, for example, they can inform you if you are married or if you have expired. What you should also know about credit reporting is that it not only contains facts but also reviews and advice that pave the way for economic assessment.

How does a credit report apply?

How does the actual transfer of information work from credit and credit reporting agencies to credit and lenders? Most commonly, loans and creditors are linked to registers with credit reporting companies. They are customers of credit reporting companies. Other ways are that credit reporting companies provide information through printed fonts or CDs. This sheet with important loan terms you should know is also a great tool.

More information about credit information

All persons over the age of 15 are registered in registers held by the major credit reporting agencies. You have no right to be removed or dropped out of the registry. Credit reporting companies collect most of their information from authorities. There are mainly three types of information that are retrieved from a credit report. The first is taken from the National Register of Personal Addresses, which gives information about your address, name and social security number. The other is taken from the Tax Agency and their tax registers and property tax registers, which information tells you about your income and any property ownership. The third type of information comes from the Kronofogdemyndigheten and tells about any payment remarks, for example, statements in payment orders, taxes and fees, or failed attempts. Information on payment notes for a credit report of an individual may only be forwarded as determined by a court or other authority. Or, the payment reminder has led to a decision on initial debt restructuring, or canceled payments or bankruptcy or chord application. Visit this great page about credit reports and scores

Amortization of business loans

Amortise

Amortization is most easily described as debt repayment. Amortization normally applies to parts of a debt, but may also cover the entire amount of debt. Amortization can be done in different ways - according to an amortization plan. The most common amortization plans are:

Amortization-free business loan

It is a loan where the entire debt is repaid at the end of the term. This is not common when it comes to business loans but it can happen. No payments are made in the meantime. In 2016, a debt repayment requirement was introduced, requiring them to be amortized by at least 1% of the loan amount. Straight amortization means that the amortization portion is constant at each payment date. The expense therefore decreases over time, as the capital debt, and hence the interest rate, decreases. Often, there is a mix of the two. You have a fixed amount that you have to repay each month but if you can pay back the whole amount, it's ok. Look out for hidden costs and fees for early repayment if you plan to pay back earlier than stated in the contract. It might have a higher monthly fee or interest rate but maybe it's worth it if you know that you can pay back before the loan period comes to an end.

Annuity

For an annuity loan, a constant amount of interest and amortization is paid together at each payment date. As the interest portion of this amount decreases over time, as the debt is settled, the amortization portion increases. You can read more examples of that here

Due to the fact that the remaining debt does not decrease linearly by an annuity loan, as the amortization increases over time, the total interest expense for the entire loan term will be slightly higher than in the case of straight-line repayment. However, this difference is small in short terms. The advantage of an annuity loan is that the expenses at the first payment dates will be less than in the case of straight amortization. This difference becomes clearer for loans with longer maturities.