Business financing, in short
A term loan and a line of credit are priced completely differently. A term loan disburses the full amount upfront and charges interest on all of it from day one, on a fixed repayment schedule. A line of credit only charges interest on whatever balance you've actually drawn, so a smaller draw against a larger limit costs far less than the limit itself would suggest — and pays off faster than most people expect.
Key takeaways
- A $100,000 term loan at 8% over 60 months with a 1% origination fee costs $2,027.64/month, $21,658.37 in total interest, plus the $1,000 fee — $122,658.37 total.
- That 1% fee reduces your usable proceeds to $99,000 even though you're still making payments as if you'd borrowed the full $100,000.
- A $50,000 line of credit with a $25,000 balance at 10%, paid down at $2,000/month, clears in about 14 months and costs roughly $1,512 in total interest — a fraction of what a term loan for the full limit would cost.
- The calculator's "effective APR" for term loans expresses total interest plus fees as a percentage of the loan amount per year of term — a useful side-by-side comparison figure, though it isn't computed the same way a regulated lender APR disclosure is.
Term loan, SBA loan, or line of credit
A term loan hands over a lump sum that you repay on a fixed schedule — predictable payments, but interest accrues on the full balance from the start. An SBA loan is a term loan with a partial government guarantee behind it, which can unlock longer terms or smaller down payments, usually in exchange for a guarantee fee on top of standard costs. A line of credit works more like a credit card: you're approved for a limit, but you only pay interest on what you actually draw, making it a better fit for uneven cash flow than a lump-sum need.
How this calculator prices a term loan
Using the defaults — $100,000 loan, 8% rate, 60-month term, 1% origination fee:
Monthly payment ≈ $2,027.64
Total interest over 60 months ≈ $21,658.37
Origination fee = $100,000 × 1% = $1,000
Total cost = $21,658.37 + $1,000 + $100,000 ≈ $122,658.37
What the origination fee actually costs you
The $1,000 fee on the default example doesn't just cost $1,000 — it also shrinks the money you actually get to use. Net proceeds come to $99,000, but your monthly payment is still calculated on the full $100,000 face amount. That gap matters most when you're financing a specific dollar need: to walk away with exactly $100,000 in usable capital, you'd need to borrow more than $100,000 to cover the fee on top.
How a line of credit pays down differently
On a $50,000 credit limit with a $25,000 balance (50% utilization) at 10%, paying $2,000 a month clears the balance in about 14 months and costs roughly $1,512 in total interest. Compare that to what a $50,000 term loan at the same rate would cost over even a short term — the line of credit is far cheaper here specifically because you're only carrying and paying interest on half the limit, not the whole thing. That's the core trade-off: a line of credit costs less when you don't need the full amount, but it can tempt you into carrying a revolving balance longer than a fixed-schedule term loan would ever allow.
Reading the effective APR figure
For term loans, this calculator's "effective APR" divides total interest and fees by the loan amount and by the number of years in the term — a simplified, easy-to-compare cost-per-year figure. It's useful for lining up two financing offers side by side, but it isn't calculated the same way a regulated APR disclosure from a lender is, so don't treat the two as interchangeable when you're comparing this estimate against an actual loan offer.
Related calculators
For financing that isn't specifically for a business, the personal loan calculator and general loan calculator cover any fixed-rate installment loan. To isolate exactly how much fees alone add to your true cost of borrowing, see the APR calculator.