## How do I use the small business loan calculator?

The free app above is used to calculate returns on your small business loan and the related income and expense projections. From a big hire to a marketing campaign to the acquisition of a competitor: the math is the same.ย

You can make your calculation simpler or more complex using the Edit Formula button. This allows you to make hypothetical projections of business returns. Such math is not a part of the raw ROI formula but is still sure to be useful.

Remember that the results are shareable! Link straight to the ROI scenarios that you generate to anybody over email, text, or social media.

## What is a small business return on investment (ROI)?

Return on investment (abbreviated as โROIโ from this point on) in small business describes what a business owner or investor gets in return after what they put in to fund a business or business decision.

This is perhaps the most important math equation that youโll ever use in a managerial or entrepreneurial role. ROI validates whether the time and effort of you and your employees is well-spent.

## How is small business ROI calculated?

There is only one true ROI equation and the formula technically doesnโt change when applied to small business ventures. Hereโs a quick refresher:

\text{Small Business ROI} = {\text{Net Return}  \above{1pt} \text{Cost}} \times 100


In this equation, Net Return represents the Future Value minus the Initial Value of an investment.

\text{Net Return}  = \text{Future Value} - \text{Initial Value}

For example, the equity value of a merger or acquisition after broker commissions and other buyer-side expenses might represent your Initial Value.

An equity valuation of the business after a certain amount of time would represent the Future Value.

Small business valuations are frequently calculated by some type of multiple on earnings before taxes, interest, and depreciation of assets (abbreviated as EBITDA). Future Value is also impacted by how much income remains in on a business after startup expenses and any other assets on a balance sheet.

You can also think more granularly. Itโs not just about starting or buying a business. You can apply the ROI formula to a major IT expenditure, to signing a new office lease, or the acquisition of a single customer.

## Definitions

### Angel Investor

Angel investors provide money for small, new businesses. These startups are generally young companies that haven’t yet had a chance to become profitable. Typically, they will invest their own money in exchange for equity in an early funding round.

### Capitalization Table

A capitalization table lists the owners of a company. It also lists other information about the quantity and quality of their shares.

### Common Stock

Common stock represents membership interest in a company. In a liquidation, common stockholders are generally last in line for payment.

### Convertible Note

A convertible note is a type of security that’s essentially a loan from the investor to the company. Such a note will typically convert from debt to preferred stock upon the closing of the next funding round or other terms of an agreement.

### Dilution

When a corporation issues new shares of stock, existing shareholders are diluted, or left with a smaller percentage ownership interest in the company.

### Funding Round

A funding round is a period of time during which a company raises money from investors. The money is usually raised on the same terms and conditions during each round and is completed in a single transaction.

The company’s valuation likely increases with each successive raise and the purchase price per share is likely to increase in harmony.

### Liquidity

Liquidity is the ease with which securities can be bought or sold in a secondary market without affecting the price of that asset.

### Maturity Date

A maturity date is the date on which a borrower must make the final payment on a loan or other debt.

### Valuation

A valuation establishes how much the business and its investors assess a particular company to be worth. Sometimes this is as much art as it is science as there are a number of formulas and industry-specific adjustments that are made to them.