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Prelude to Taconomics: Brief Introduction to Small Business Loans

In most cases you should avoid taking on debt to start a business. Debt will create an ongoing obligation that will drain your cashflow and doesn't care if your sales had a bad month (or year). But we realize that many people do take out a loan to start their small business, so we are sharing the small business loan assumptions that we used in our Taconomics business case.

Type of Loans
  • Amortized Loan
    • Borrower pays the same total monthly payment amount for the entire term of the loan, but the amount of both principal and interest paid changes each month. 
    • Most mortgages and car loans are amortized loans. 

  • Fixed Principal Loan
    • Borrower pays the same monthly principal amount for the entire term of the loan, but the amount of both the total payment and principal declines each month.
    • All else equal a fixed principal loan will pay less interest than an amortized loan. But a fixed principal loan may not be available to you.  

Notes
  • Small Business Loans will generally have higher rates than what someone with good credit would get for a personal home or car loan. 
  • If you decide to get a small business loan, you should shop around and get offers from multiple banks and credit unions.
  • You should not get a small business loan if you don't already have enough cash to pay the first year of payments.
  • You should not start a business where a slow start or a few bad months would put you in a dire situation. 
  • You should not take out a loan if you are unsure if you'll be able to pay it back. 
  • You should start a business with a large margin of safety.

Example Terms and Schedules for an Amortized Loan and a Fixed Principal Loan:

Amortized Loan
Fixed Principal Loan
Rate9.00%Rate9.00%
Term (Months)60Term (Months)60
Loan Amount$51,000Loan Amount$51,000
Total Interest$12,521Total Interest$11,666
Monthly PrincipalVariableMonthly Principal$850
Monthly InterestVariableMonthly InterestVariable
Total Monthly Payment$1,059Total Monthly PaymentVariable
Annual Payment$12,704Annual PaymentVariable
Amortized Loan Schedule
Fixed Principal Loan Schedule
MonthPrincipalInterestTotalRemaining BalanceMonthPrincipalInterestTotalRemaining Balance
0000$51,0000000$51,000
1$676$383$1,059$50,3241$850$383$1,233$50,150
2$681$377$1,059$49,6432$850$376$1,226$49,300
3$686$372$1,059$48,9563$850$370$1,220$48,450
4$692$367$1,059$48,2654$850$363$1,213$47,600
5$697$362$1,059$47,5685$850$357$1,207$46,750
6$702$357$1,059$46,8666$850$351$1,201$45,900
7$707$351$1,059$46,1597$850$344$1,194$45,050
8$712$346$1,059$45,4468$850$338$1,188$44,200
9$718$341$1,059$44,7299$850$332$1,182$43,350
10$723$335$1,059$44,00510$850$325$1,175$42,500
11$729$330$1,059$43,27711$850$319$1,169$41,650
12$734$325$1,059$42,54312$850$312$1,162$40,800
13$740$319$1,059$41,80313$850$306$1,156$39,950
14$745$314$1,059$41,05814$850$300$1,150$39,100
15$751$308$1,059$40,30715$850$293$1,143$38,250
16$756$302$1,059$39,55116$850$287$1,137$37,400
17$762$297$1,059$38,78917$850$281$1,131$36,550
18$768$291$1,059$38,02118$850$274$1,124$35,700
19$774$285$1,059$37,24719$850$268$1,118$34,850
20$779$279$1,059$36,46820$850$261$1,111$34,000
21$785$274$1,059$35,68321$850$255$1,105$33,150
22$791$268$1,059$34,89222$850$249$1,099$32,300
23$797$262$1,059$34,09523$850$242$1,092$31,450
24$803$256$1,059$33,29224$850$236$1,086$30,600
25$809$250$1,059$32,48325$850$230$1,080$29,750
26$815$244$1,059$31,66826$850$223$1,073$28,900
27$821$238$1,059$30,84727$850$217$1,067$28,050
28$827$231$1,059$30,01928$850$210$1,060$27,200
29$834$225$1,059$29,18629$850$204$1,054$26,350
30$840$219$1,059$28,34630$850$198$1,048$25,500
31$846$213$1,059$27,50031$850$191$1,041$24,650
32$852$206$1,059$26,64732$850$185$1,035$23,800
33$859$200$1,059$25,78933$850$179$1,029$22,950
34$865$193$1,059$24,92334$850$172$1,022$22,100
35$872$187$1,059$24,05235$850$166$1,016$21,250
36$878$180$1,059$23,17336$850$159$1,009$20,400
37$885$174$1,059$22,28837$850$153$1,003$19,550
38$892$167$1,059$21,39738$850$147$997$18,700
39$898$160$1,059$20,49939$850$140$990$17,850
40$905$154$1,059$19,59440$850$134$984$17,000
41$912$147$1,059$18,68241$850$128$978$16,150
42$919$140$1,059$17,76442$850$121$971$15,300
43$925$133$1,059$16,83843$850$115$965$14,450
44$932$126$1,059$15,90644$850$108$958$13,600
45$939$119$1,059$14,96645$850$102$952$12,750
46$946$112$1,059$14,02046$850$96$946$11,900
47$954$105$1,059$13,06647$850$89$939$11,050
48$961$98$1,059$12,10648$850$83$933$10,200
49$968$91$1,059$11,13849$850$77$927$9,350
50$975$84$1,059$10,16350$850$70$920$8,500
51$982$76$1,059$9,18051$850$64$914$7,650
52$990$69$1,059$8,19052$850$57$907$6,800
53$997$61$1,059$7,19353$850$51$901$5,950
54$1,005$54$1,059$6,18854$850$45$895$5,100
55$1,012$46$1,059$5,17655$850$38$888$4,250
56$1,020$39$1,059$4,15656$850$32$882$3,400
57$1,028$31$1,059$3,12957$850$26$876$2,550
58$1,035$23$1,059$2,09358$850$19$869$1,700
59$1,043$16$1,059$1,05159$850$13$863$850
60$1,051$8$1,059$060$850$6$856$0

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