Taking out a business loan can fuel your growth, but it can also sink your cash flow if you don't understand the math.
Lenders often advertise "low monthly payments" while hiding the true cost of capital. Here is how to analyze a loan offer in 2026.
The 3 Numbers That Matter
- Principal: The amount you borrow.
- Interest Rate (APR): The annual cost of borrowing.
- Term: How long you have to pay it back.
The "Amortization" Trap
Most business loans are amortized. This means your early payments go mostly toward interest, not paying down the loan.
Example:
- Loan: $100,000
- Rate: 10%
- Term: 10 Years
In Year 1, you will pay $9,800 in interest alone, and only reduce your debt by roughly $6,000. This is why paying off a loan early can save you thousands.
Can You Afford It?
A good rule of thumb is the 1.25 Debt Service Coverage Ratio (DSCR). Your business should generate $1.25 in net income for every $1.00 of debt payment.
If your monthly loan payment is $2,000, your business needs to have $2,500 in free cash flow after expenses.
Simulate Your Loan
Don't guess. Use our calculator to see:
- Your exact monthly payment.
- Total interest you will pay over the life of the loan.
- Amortization schedule.
Run the numbers now to see if that "great deal" is actually affordable.