Every person requires funds at every stage in their life to meet all their distinct monetary requirements.
Many people often do not have enough funds and find it challenging to make ends meet or make vital fiscal decisions. This is the time when a loan facility comes in handy to help people meet all their financial obligations.
Out of all distinct kinds of loans and finance options available, business loans are gaining popularity amongst small, medium, and large business owners.
Before you avail of a business loan, make sure you know know how to calculate loan EMI, therefore, you take a wise decision.
In today’s post, you’re going to learn how to calculate interest on a loan.
Let’s get started:
Table of Contents
What is a business loan?
A business loan is a type of financing option presented by numerous lending institutions that can assist you in meeting the financial obligations required to expand your business operations.
Apart from expanding a business, you can further avail of a business loan to start a new business or purchase some new machinery for your existing business.
These loans always assist in growing businesses which would further help solve all other financial problems of a person.
If you are also looking for a business loan to expand your enterprise operations, always opt for the right financial institution that provides the most competitive business loan interest rates.
How can you calculate business loan interest?
A business loan taken from a reputed financial institution can perform a multitude of business operations ranging from installing a piece of new machinery to buying raw materials to numerous other business development activities.
However, before obtaining a loan for your business, it is more than ever important to check out the repayment terms and the applicable interest rate so that you can plan all your finances properly.
Although the business loan interest rate normally varies from one financial institution to another, you can easily calculate your loan interest rate with a business loan interest calculator available online. To calculate the interest rate with this online calculator, all you must do is enter some basic details regarding your loan.
Once you enter the details, it will automatically project the applicable business loan interest rate and the calculation of EMI based on the loan tenure and repayment preference chosen.
In addition to this, with the help of this online business loan interest calculator, you can easily compare the interest rates offered by various financial institutions and pick the most cost-effective one to fulfill all your set business expansion goals.
Loan Interest Calculation Formula
If a lender uses the simple interest method, it’s easy to calculate loan interest if you have the right information available. Gather information like your principal loan amount, interest rate, and the total number of months or years that you’ll be paying the loan.
Calculation: You can calculate your total interest by using this formula: Principal loan amount x Interest rate x Time (aka Number of years in term) = Interest
If you take out a five-year loan for Rs.20,000 and the interest rate on the loan is 5 percent, the simple interest formula works as follows:
Rs.20,000 x .05 x 5 = Rs.5,000 in interest
Factors affecting the business loan interest
The interest rate charged on a business loan can never be fixed as numerous factors are responsible for a higher or a lower loan interest rate. Mentioned below are some of the most significant factors that affect a business loan interest.
Nature of the loan lender
There are numerous kinds of financial lenders prevalent in the market for obtaining a business loan. It includes banks, NBFCs, and some other informal loan service providers, and the rate of loan interest normally differs depending on the nature of these lenders.
For instance, business loan interest charged by an informal loan provider is usually higher than banks or NBFCs.
Hence, it is always advised to choose an NBFC for obtaining a business loan as it offers the lowest interest rates. The loan interest rate charged by NBFCs varies from 13% to 21%, depending on the loan sum and repayment duration.
The amount of loan is again the most crucial factor that affects the interest of a business loan. If you take a business loan for a higher amount, then the interest charged will also be higher than the interest charged for a smaller loan amount.
The tenure of the loan is another factor that affects the interest rate of a business loan. You must always note that a loan obtained for a longer tenure will attract a low interest rate compared to a loan taken for a smaller duration.
This is because you can easily negotiate the rate of interest with the chosen financial institution due to the extended loan period.
The Financial Position of the Applicants and Their Business
The financial position of the loan applicants and their business also affects the loan interest rate. Hence, if you wish to obtain a business loan at a lower interest rate, you must always ensure to keep your business in a good financial position.
Regularly update your profit and loss statements and other financial statements. Doing this will always assist you in convincing financial institutions to grant loans at a low-interest rate.
How to Apply for a Business Loan?
Nowadays, applying for a business loan has become extremely easy. All you are required to do is fill out an online loan application form of the desired financial institution from which you are planning to get a loan.
Once you fill up the form by entering all the basic details, you will be required to submit a list of business loan documents listed below.
- Duly filled business loan online application form
- Purpose of obtaining a loan with a detailed plan
- Business owner’s photo identity proof (AADHAR Card / PAN Card / Driving License / Voter’s Id Card / Passport)
- Identity documents of the company that includes company PAN Card, Trade license number, electricity bill, and ownership documents
- Thoroughly audited balance sheet for the last two financial years
- Last 6 month’s financial statement and filed Income Tax Returns for the preceding two financial years.
- Credit report with a credit score of 750+
Once you submit all these business loan documents along with the application form, the financial institution will begin the KYC and document verification procedure.
If all the documents submitted are accurate and the applicant meets all the set eligibility criteria, the financial institution will provide them with the required business loan.
Business loans are one of the most suitable ways to diversify your business and make it reach new heights.
How to Apply for Business Loan from Ziploan?
Here are three steps process to MSME loan apply online from ZipLoan:
- Submit Application – Simply enter your personal, business, and financial info to receive an MSME / SME Loans offer.
- Upload Documents – Upload digital copies of your documents in a single-step process for verification.
- Get Sanctioned – Receive your MSME / SME Loans approval and disbursal within 3 working days*.
However, before opting for any loan, you must analyze your requirements and calculate the interest rate and consider numerous factors not to face any problems at the time of repayment.
Looking for a business loan or an MSME loan? Contact us today to get your business loan approved within minutes.
Frequently Asked Questions
How to calculate loan interest
Calculation: You can calculate your total interest by using this formula: Principal loan amount x Interest rate x Time (aka Number of years in term) = Interest.
Monthly Interest Rate Calculation Example
1) Convert the annual rate from a percent to a decimal by dividing by 100: 10/100 = 0.10.
2) Now divide that number by 12 to get the monthly interest rate in decimal form: 0.10/12 = 0.0083.
Simple interest is based on the principal amount of a loan or deposit. In contrast, compound interest is based on the principal amount and the interest that accumulates on it in every period.
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