Business loan EMI is the amount paid against the loan availed for business. Most business owners have some financial commitments to meet. Whether they have enough liquid funds or not, these requirements are needed to be met on time. So, they turn towards availing business loans. Business loan EMI is the payment towards the same loan.

## What is EMI?

Equated Monthly Installment or EMI is the monthly payment of a loan. It consists of two important components, namely principal loan amount and the charge for the loan (interest). During the initial repayment tenure, the interest component in the EMI is higher as compared to the principal amount. And with time, the principal amount becomes higher than the interest. You can use the EMI calculator provided by the lender to calculate the EMI amount.

## What is the Amortization Schedule?

The amortization schedule is a tabular representation of the monthly payments – business loan EMI. The table shows each component – interest and principal – its amount to be paid every month during the entire loan tenure. The amortization table essentially helps in understanding the loan repayment schedule and outstanding payment at the end of each month. The table is beneficial especially when the business owner wishes to prepay the loan before its tenure.

## What are the Factors that affect EMI?

Business loan EMI is primarily calculated on the basis of the following three important factors:

• Principal amount
• Rate of interest
• Loan tenure

## How is Business Loan EMI Calculated?

The formula used to calculate loan EMI is:

EMI = Principal amount x interest rate x (1 + interest rate) loan tenure / ((1 + interest rate) loan tenure – 1))

The loan EMI is directly proportional to the amount borrowed and interest cost incurred. Therefore, if a high amount is borrowed, the EMI will be high and vice versa. You can also opt for a long loan tenure which will lower down the EMI amount. However, this will increase the interest cost.

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## What are the Types of Interest Rate?

The other important factor that affects the loan EMI is the interest rate. There are two types of interest for loan – fixed rate or floating rate of interest. If you choose a fixed rate, the EMI will remain constant throughout the entire loan tenure. Nevertheless, if you choose the floating rate of interest, the EMI will fluctuate as and according to the market rates.