1. What is the Borrowing Power Formula?

The borrowing power formula calculates the maximum loan amount (principal) you can borrow based on your affordable monthly payment, interest rate, and loan term. It's derived from the standard loan payment formula rearranged to solve for principal.

2. How Does the Calculator Work?

The calculator uses the borrowing power formula:

Where:

• \( P \) — Maximum loan amount (principal)
• \( PMT \) — Affordable monthly payment
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula calculates the present value of a series of future payments at a given interest rate.

3. Importance of Borrowing Power Calculation

Details: Knowing your borrowing power helps in business planning, ensures you don't overextend financially, and allows you to negotiate better loan terms with lenders.

4. Using the Calculator

Tips: Enter your comfortable monthly payment amount, the annual interest rate (not APR), and the loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How accurate is this calculator?
A: It provides a good estimate, but actual loan offers may vary based on credit history, collateral, and lender policies.

Q2: Does this include fees and charges?
A: No, this calculates principal only. Additional fees would reduce the actual amount you receive.

Q3: What's a typical business loan interest rate?
A: Rates vary widely (4-30%) based on creditworthiness, loan type, and market conditions.

Q4: How does loan term affect borrowing power?
A: Longer terms increase borrowing power but result in more total interest paid.

Q5: Should I borrow the maximum amount?
A: Not necessarily. Consider cash flow needs, repayment ability, and keep a buffer for unexpected expenses.