Business Health Check (opens a tool overlay)
Where is your business actually weakest?
Funding and finance
True Cost of a Loan
What does the repayment schedule really cost?
Your business. Your figures.
Enter your figures
How to use this tool, its method and limitations
Compare the cash you actually receive with every repayment. Choose a reducing balance or flat interest schedule and enter fees, insurance and an optional annual exchange rate stress assumption.
Why this question matters
A quoted annual rate does not describe every cash consequence of a loan. The business receives money on one date and commits to a series of payments afterwards. Upfront deductions reduce the usable amount, while the repayment method changes how interest is calculated. This tool places those elements together so that two offers can be compared on a more consistent basis. It does not recommend a lender or determine whether borrowing is appropriate for your business.
Read the actual offer before entering figures. Identify the principal, stated annual rate, term in complete months, fees and insurance deducted before disbursement. Choose whether the schedule uses reducing balance or flat interest. Do not infer the method from the size of the advertised rate. Ask the provider for a complete repayment schedule where the wording is unclear. A fee paid separately rather than deducted may require a different cash model from the one represented here.
Consider the currency of the obligation as well as the currency in which the business earns receipts. The optional annual currency stress is your assumption about how repayment cost might change when translated into the business currency. Enter zero for a same currency scenario. No live exchange rate or forecast is supplied. Use clearly labelled alternatives to examine exposure rather than presenting one selected stress rate as a prediction.
Understand the method
- Reducing balance instalment = P × r ÷ (1 − (1 + r)^(−months)), where r is annual rate ÷ 1200.
- Flat instalment = (P + P × annual rate × months ÷ 1200) ÷ months.
- Effective annual cost is derived from the monthly cash flow yield on net funds received.
For reducing balance interest, the tool calculates an equal monthly instalment from the principal, monthly rate and term. The monthly rate is the stated annual percentage divided by twelve and by one hundred. For flat interest, interest is calculated on the original principal across the full term before dividing the total by the number of months. The same stated annual percentage therefore produces different repayments under the two methods.
Net funds received equal principal less the entered upfront fees and insurance. Total financing cost compares all scheduled repayments with those net funds. The effective annual cost is derived from the monthly cash flow yield and annualised by compounding. It is not simply the quoted rate plus the fee percentage. A large deduction or a short term can make the effective cost materially different from the headline figure, even where the monthly payment appears manageable.
Compare the repayment schedule with a conservative cash forecast. A borrowing decision depends on the ability to make payments when due, not just the amount of the annual cost. Test delayed receipts and necessary operating expenses alongside the instalment. If comparing offers, hold the required usable funds and term as consistent as possible. Two offers with equal principal but different deductions do not provide the same cash to deploy in the business.
Keep the result in perspective
This is a transparent planning calculation or self assessment, not a sector benchmark, professional valuation or a prediction of an outcome.
Assumes equal monthly repayments starting one month after disbursement and no balloon payment. The FX scenario compounds your assumption monthly. Check the actual lender schedule and currency exposure.
This model assumes equal monthly payments beginning one month after disbursement. It does not model a balloon payment, irregular instalments, changing rates, daily interest conventions, grace periods, early settlement charges or additional charges not entered. Fees plus insurance must be less than principal, otherwise there is no positive net disbursement for the calculation. Check the provider schedule before relying on the displayed figures.
The currency stress compounds the entered annual assumption across successive monthly repayments. It illustrates exposure; it does not estimate the likelihood or timing of currency movements. The effective annual cost is an analytical cash flow measure under these assumptions, not a representation that the tool meets every regulatory disclosure convention. Obtain appropriate financial and legal advice before accepting a binding facility.
Read the full limitations or explore how Ayodeji approaches this work.
Questions about this tool
Can a zero interest loan still have a cost?
Yes. Upfront fees or insurance can mean that the business receives less than it repays. The tool includes those deductions when comparing net cash received with scheduled payments.
What if the actual schedule differs from this result?
Use the discrepancy to ask for clarification. The contract and provider schedule may contain timing or charging rules outside this model. Resolve those differences before making the commitment.
Does the lowest effective cost always make the best offer?
No. Security requirements, flexibility, payment dates, currency exposure and the consequences of default also matter. The calculator supplies one transparent part of the assessment.