Business Loan Calculator

• Who it helps:
  Small-business owners evaluating SBA or commercial loans, entrepreneurs modeling expansion financing, and anyone who needs to stress-test a loan against revenue-decline scenarios before signing.
• What it outputs:
  Monthly and annual debt service, DSCR, net operating cash flow remaining after debt service, and stress-test results showing how DSCR changes under revenue declines.
• What it does NOT do:
  It does not assess creditworthiness, guarantee loan approval, model variable-rate risk, or factor in seasonal cash-flow timing. All calculations run locally; no financial data is stored.

• Interpreting DSCR:
  A ratio of 1.0 means cash flow exactly covers the payment with nothing left over. Most lenders require at least 1.25; conservative businesses target 1.5 or higher to maintain operational flexibility.
• Worked example:
  A $200,000 loan at 8% APR for 10 years produces a monthly payment of roughly $2,426 ($29,112 annually). If annual operating cash flow is $40,000, DSCR = 40,000 ÷ 29,112 ≈ 1.37—above the 1.25 floor but with limited buffer for a revenue dip.
• Edge cases:
  Interest-only periods produce artificially high DSCR that drops sharply when amortization begins. Always evaluate using the full amortizing payment to avoid underestimating long-term risk.

• Cash flow inputs:
  Provide your monthly or annual operating revenue and total operating expenses, including owner salary—a real cash drain that must be counted. The calculator derives net operating cash flow and computes DSCR automatically.
• Reviewing DSCR:
  A DSCR above 1.25 is typically the minimum lenders accept; below 1.0 means cash flow cannot cover the debt. Between 1.0 and 1.25, the loan may technically work but leaves dangerously thin margins.
• Stress testing:
  Model revenue declines of 10–20% to see how DSCR changes under pressure. If the stressed DSCR drops below 1.0, the loan carries meaningful operational risk even if baseline numbers look acceptable.

Stress Testing Loan Sustainability

• Revenue Decline Scenarios
  Model how DSCR changes if revenue declines 10-20%. This reveals vulnerability to economic downturns or competitive pressure.
• Expense Creep
  Account for rising costs: inflation, wage increases, supply chain disruptions. Even small expense increases can push marginal DSCR into dangerous territory.
• Interest Rate Risk
  If your loan has a variable rate, model rate increases. A 2% rate increase can significantly impact debt service and DSCR.

Stress testing reveals worst-case scenarios. If a loan is unsustainable under stress, it poses operational risk even in normal conditions.

Ignoring Seasonality and Volatility

• Seasonal Businesses
  A loan that looks safe using peak-season revenue may become unsustainable during low seasons. Use average monthly revenue over a full year.
• Revenue Volatility
  Businesses with volatile revenue need higher DSCR buffers. A 1.25 DSCR may be acceptable for stable businesses but risky for volatile ones.

Account for your business's specific revenue patterns when evaluating loan safety.