How to Calculate Commercial Loans

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Commercial loans finance business expenses.
Commercial loans finance business expenses. (Image: Corporate Building image by Bobby4237 from Fotolia.com)

Commercial loans are, traditionally, accounts that finance business operations. These loans are usually secured with business property or holdings. If the company is large, the loans can also be quite large. Some small businesses use commercial lending to invest in research and development, purchase supplies and new property or simply meet payroll. You can calculate commercial loans manually.

Things You'll Need

  • Commercial loan paperwork
  • Calculator
  • Commercial loan statement

Pull out the documents you signed and received when you closed your commercial loan. Look for the note and the mortgage agreement (if applicable). The mortgage agreement is that which is recorded--if the loan is secured by business property. The mortgage agreement will tell you the total principal balance on the account. The note will show the term (length) and interest rate of the loan.

Write down the following formula for a manual calculation: M = P [ J / 1 - (1 + J) ^ - N]. Note the variables: M = Monthly Payment; P = Principal Balance; J = Interest Rate (in decimal form--interest divided by 1,200); N = Term (in months); and ^ = Exponent. For example, the following formula would represent a $1,000,000 loan at 5 percent on a 20-year term: M = 1,000,000 [ 0.004 / 1 - ( 1 + 0.004) ^ - 240]. The monthly payment on this example is $6489.50.

Calculate your commercial loan payment using this formula. Make sure to accurately convert your interest rate to decimal form. Also make sure your term is reflected in months, not years (e.g. a 30-year term is 360 months).

Verify your calculation with an online calculator (see Resources). Contact your commercial lender if there is a large difference between your manual calculation and the online calculation. Corroborate these figures with your monthly commercial loan statement.

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