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
Rate	9.00%					Rate	9.00%
Term (Months)	60					Term (Months)	60
Loan Amount	$51,000					Loan Amount	$51,000
Total Interest	$12,521					Total Interest	$11,666
Monthly Principal	Variable					Monthly Principal	$850
Monthly Interest	Variable					Monthly Interest	Variable
Total Monthly Payment	$1,059					Total Monthly Payment	Variable
Annual Payment	$12,704					Annual Payment	Variable
		Amortized Loan Schedule						Fixed Principal Loan Schedule
Month	Principal	Interest	Total	Remaining Balance		Month	Principal	Interest	Total	Remaining Balance
0	0	0	0	$51,000		0	0	0	0	$51,000
1	$676	$383	$1,059	$50,324		1	$850	$383	$1,233	$50,150
2	$681	$377	$1,059	$49,643		2	$850	$376	$1,226	$49,300
3	$686	$372	$1,059	$48,956		3	$850	$370	$1,220	$48,450
4	$692	$367	$1,059	$48,265		4	$850	$363	$1,213	$47,600
5	$697	$362	$1,059	$47,568		5	$850	$357	$1,207	$46,750
6	$702	$357	$1,059	$46,866		6	$850	$351	$1,201	$45,900
7	$707	$351	$1,059	$46,159		7	$850	$344	$1,194	$45,050
8	$712	$346	$1,059	$45,446		8	$850	$338	$1,188	$44,200
9	$718	$341	$1,059	$44,729		9	$850	$332	$1,182	$43,350
10	$723	$335	$1,059	$44,005		10	$850	$325	$1,175	$42,500
11	$729	$330	$1,059	$43,277		11	$850	$319	$1,169	$41,650
12	$734	$325	$1,059	$42,543		12	$850	$312	$1,162	$40,800
13	$740	$319	$1,059	$41,803		13	$850	$306	$1,156	$39,950
14	$745	$314	$1,059	$41,058		14	$850	$300	$1,150	$39,100
15	$751	$308	$1,059	$40,307		15	$850	$293	$1,143	$38,250
16	$756	$302	$1,059	$39,551		16	$850	$287	$1,137	$37,400
17	$762	$297	$1,059	$38,789		17	$850	$281	$1,131	$36,550
18	$768	$291	$1,059	$38,021		18	$850	$274	$1,124	$35,700
19	$774	$285	$1,059	$37,247		19	$850	$268	$1,118	$34,850
20	$779	$279	$1,059	$36,468		20	$850	$261	$1,111	$34,000
21	$785	$274	$1,059	$35,683		21	$850	$255	$1,105	$33,150
22	$791	$268	$1,059	$34,892		22	$850	$249	$1,099	$32,300
23	$797	$262	$1,059	$34,095		23	$850	$242	$1,092	$31,450
24	$803	$256	$1,059	$33,292		24	$850	$236	$1,086	$30,600
25	$809	$250	$1,059	$32,483		25	$850	$230	$1,080	$29,750
26	$815	$244	$1,059	$31,668		26	$850	$223	$1,073	$28,900
27	$821	$238	$1,059	$30,847		27	$850	$217	$1,067	$28,050
28	$827	$231	$1,059	$30,019		28	$850	$210	$1,060	$27,200
29	$834	$225	$1,059	$29,186		29	$850	$204	$1,054	$26,350
30	$840	$219	$1,059	$28,346		30	$850	$198	$1,048	$25,500
31	$846	$213	$1,059	$27,500		31	$850	$191	$1,041	$24,650
32	$852	$206	$1,059	$26,647		32	$850	$185	$1,035	$23,800
33	$859	$200	$1,059	$25,789		33	$850	$179	$1,029	$22,950
34	$865	$193	$1,059	$24,923		34	$850	$172	$1,022	$22,100
35	$872	$187	$1,059	$24,052		35	$850	$166	$1,016	$21,250
36	$878	$180	$1,059	$23,173		36	$850	$159	$1,009	$20,400
37	$885	$174	$1,059	$22,288		37	$850	$153	$1,003	$19,550
38	$892	$167	$1,059	$21,397		38	$850	$147	$997	$18,700
39	$898	$160	$1,059	$20,499		39	$850	$140	$990	$17,850
40	$905	$154	$1,059	$19,594		40	$850	$134	$984	$17,000
41	$912	$147	$1,059	$18,682		41	$850	$128	$978	$16,150
42	$919	$140	$1,059	$17,764		42	$850	$121	$971	$15,300
43	$925	$133	$1,059	$16,838		43	$850	$115	$965	$14,450
44	$932	$126	$1,059	$15,906		44	$850	$108	$958	$13,600
45	$939	$119	$1,059	$14,966		45	$850	$102	$952	$12,750
46	$946	$112	$1,059	$14,020		46	$850	$96	$946	$11,900
47	$954	$105	$1,059	$13,066		47	$850	$89	$939	$11,050
48	$961	$98	$1,059	$12,106		48	$850	$83	$933	$10,200
49	$968	$91	$1,059	$11,138		49	$850	$77	$927	$9,350
50	$975	$84	$1,059	$10,163		50	$850	$70	$920	$8,500
51	$982	$76	$1,059	$9,180		51	$850	$64	$914	$7,650
52	$990	$69	$1,059	$8,190		52	$850	$57	$907	$6,800
53	$997	$61	$1,059	$7,193		53	$850	$51	$901	$5,950
54	$1,005	$54	$1,059	$6,188		54	$850	$45	$895	$5,100
55	$1,012	$46	$1,059	$5,176		55	$850	$38	$888	$4,250
56	$1,020	$39	$1,059	$4,156		56	$850	$32	$882	$3,400
57	$1,028	$31	$1,059	$3,129		57	$850	$26	$876	$2,550
58	$1,035	$23	$1,059	$2,093		58	$850	$19	$869	$1,700
59	$1,043	$16	$1,059	$1,051		59	$850	$13	$863	$850
60	$1,051	$8	$1,059	$0		60	$850	$6	$856	$0