Funding Tools7 min read
Business Loan Calculator UK 2025: Compare Your Options
Calculate monthly payments and total costs for different funding types. Compare bank loans, merchant cash advances, and alternative finance options.
How to Calculate Business Loan Costs
Understanding true loan costs requires calculating:
- APR (Annual Percentage Rate): True annual cost including interest and fees
- Monthly payment: What you'll pay each month
- Total repayment: How much you pay back total
- Total cost: Interest + fees (total repayment minus principal)
Real Cost Examples (2025 Rates)
£20,000 Loan Over 2 Years
| Lender Type | APR | Monthly | Total Cost |
|---|---|---|---|
| Bank Loan (good credit) | 6% | £885 | £1,240 |
| Online Lender (iwoca) | 12% | £940 | £2,560 |
| P2P Loan (Funding Circle) | 9% | £912 | £1,888 |
| Bad Credit Lender | 25% | £1,063 | £5,512 |
| Merchant Cash Advance | 60% (effective) | Flexible | £6,000-£9,000 |
Monthly Payment Calculator Formula
Standard Loan Formula:
Monthly Payment = P × [r(1+r)^n] / [(1+r)^n - 1]
Where:
P = Principal (loan amount)
r = Monthly interest rate (APR / 12 / 100)
n = Number of monthsExample: £10,000 at 10% APR over 12 months
- P = £10,000
- r = 10% / 12 / 100 = 0.00833
- n = 12
- Monthly payment = £879
- Total repayment = £10,548
- Total cost = £548
Comparing Loan Types
Traditional Term Loan
- APR: 5-15% (good credit) or 15-35% (poor credit)
- Payment: Fixed monthly
- Best for: Predictable expenses, equipment purchase
Merchant Cash Advance
- Cost: Factor 1.15-1.45 (effective APR 25-80%)
- Payment: Daily % of card sales (flexible)
- Best for: Seasonal businesses, unpredictable cash flow
Invoice Finance
- Cost: 1.5-4% discount fee (APR 15-35%)
- Payment: When invoice paid
- Best for: B2B with 30-90 day payment terms
Hidden Costs to Include
When calculating loan costs, remember:
- Arrangement fees: 1-3% of loan (£200-£600 on £20k)
- Early repayment fees: Some charge 1-2 months interest
- Late payment fees: £25-£50 per missed payment
- Broker fees: 2-5% if using broker (avoid if possible)
How to Choose the Right Loan
Step-by-step:
- Calculate how much you need (be specific, don't overborrow)
- Determine repayment period (longer = lower monthly, higher total cost)
- Check your credit score (determines APR you'll get)
- Compare 3-5 lenders (rates vary significantly)
- Calculate total cost (not just monthly payment)
- Ensure affordable (monthly payment under 30% of monthly profit)
Typical APR Rates by Credit Score (2025)
| Credit Score | Bank APR | Alternative Lender |
|---|---|---|
| 750+ (Excellent) | 5-8% | 6-10% |
| 650-749 (Good) | 8-12% | 10-15% |
| 550-649 (Fair) | 15-25% | 15-30% |
| Under 550 (Poor) | Unlikely | 25-50% |
Conclusion
Use our business loan calculator to compare costs before applying. A £20,000 loan at 10% APR costs £2,120 in interest vs £5,512 at 25% APR - a £3,392 difference for the same amount.
Key insight: Shop around. APR rates vary by 10-20 percentage points between lenders. Comparing 5 lenders could save £2,000-£5,000 on a £20,000 loan.
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