Question

Suppose you are considering applying for a business loan. What are some of the features you would need to consider and how would you compare them using Microsoft Excel?

Answer 1

While applying for a business loan some of the features that I would need to consider are:

• Interest rates
• Processing charges
• Flexibility of tenure
• Requirement of collateral, if any

We can use Microsoft Excel to compare different business loans being provided by different banks. We can use the "PMT" function in excel do determine the periodic fixed payments and then we can make loan amortization table to compare different loans. For example suppose your business is getting two types of loans - (i) $100,000 at rate of 10% for 1 year and (ii) $100,000 for 6 months at 12%

Use PMT function. For (i) the monthly payment amount will be: PMT(10%/12, 12, 100000). This gives a value of $8,791.59. For (ii) the monthly payment amount will be: PMT(12%/12, 6, 100000). This gives a value of $17,254.84

Loan amortization table for (i):

Month	Loan amount due at the start of the month	Monthly payment	Interest	Principal	Loan amount due at the end of the month
1	100,000.00	8,791.59	833.33	7,958.26	92,041.74
2	92,041.74	8,791.59	767.01	8,024.57	84,017.17
3	84,017.17	8,791.59	700.14	8,091.45	75,925.72
4	75,925.72	8,791.59	632.71	8,158.87	67,766.85
5	67,766.85	8,791.59	564.72	8,226.86	59,539.99
6	59,539.99	8,791.59	496.17	8,295.42	51,244.56
7	51,244.56	8,791.59	427.04	8,364.55	42,880.01
8	42,880.01	8,791.59	357.33	8,434.26	34,445.76
9	34,445.76	8,791.59	287.05	8,504.54	25,941.22
10	25,941.22	8,791.59	216.18	8,575.41	17,365.80
11	17,365.80	8,791.59	144.72	8,646.87	8,718.93
12	8,718.93	8,791.59	72.66	8,718.93	-
Total		105,499.06	5,499.06

Loan amortization table for (ii):

Month	Loan amount due at the start of the month	Monthly payment	Interest	Principal	Loan amount due at the end of the month
1	100,000.00	17,254.84	1,000.00	16,254.84	83,745.16
2	83,745.16	17,254.84	837.45	16,417.39	67,327.78
3	67,327.78	17,254.84	673.28	16,581.56	50,746.22
4	50,746.22	17,254.84	507.46	16,747.37	33,998.84
5	33,998.84	17,254.84	339.99	16,914.85	17,084.00
6	17,084.00	17,254.84	170.84	17,084.00	-
Total		103,529.02	3,529.02

The company can compare the above two tables and determine which loan option suits it best.