A business owner requires a large amount of money to run a business successfully. While there are several ways to raising capital for a business, one of the most common ways is by availing a business loan, so, if you are engaged into business, be it big or small, you would many times feel the need of injecting cash into the business to feed production units. So, you can borrow money from banks or NBFCs in the form of a business loan. The loan amount that you avail can only be spent on the business and related activities.
Numerous lending organisations provide business loans. It is vital to do proper research about the loan product and lender before finalising anything. Since the amount is borrowed and needs to be repaid, it adds to the monthly expenditure of the business.
To ease potential customers like you in taking this a decision regarding a business loan, lenders offer a business loan EMI calculator. Before we delve deep into this topic, let’s first discuss business loan EMI first.
What is Business Loan EMI?
Equated Monthly Instalment or EMI is a monthly repayment towards the loan account. It mainly consists of two parts—the principal loan amount and the interest charged on it. The interest is charged on the loan amount for the entire tenure of the loan. The amount is fixed and paid every month. It is calculated based on the principal amount, rate of interest, and loan tenure.
What is a Business Loan EMI Calculator?
Business Loan EMI calculator is a calculator that helps in calculating the amount that you can avail as a business loan, and that won’t be heavy on your monthly expenditure. It calculates the amount that needs to be paid to the lender monthly to repay the loan for business.
For example, let’s assume that you have availed a business loan of Rs. 3,00,000 for the tenure of 2 years at the reducing interest rate of 25%. The total payable amount is Rs. 3,84,275. Now the calculation of the EMI will be as follows:
EMI = [P X R X (1+R) ^ N] / [ (1+R) ^ (N-1)],
P = Principal amount
R = Rate of interest
N = Tenure of the business loan
The EMI calculator works as per the formula discussed above. In case of reduced interest rate, the interest is calculated every month afresh on the decreased principal amount.
Benefits of Loan EMI Calculator
- Easy to Calculate EMI: gone are the days when there was a need to use a paper and pen to calculate the monthly payments towards the loan account. With an EMI calculator, enter a few details and click enter. That’s it. The business loan EMI calculator does all the work.
- Visualisation Benefit: most loan EMI calculators in India have the feature to show the payments in a visual format. They show the payment in a table format that shows a loan tenure (month), opening balance, EMI amount, principal paid, interest paid, and outstanding amount. The visual representation is easier to understand as compared to the normal written text.
- Financial Planning: business is risky, and you cannot know everything that may happen. Financial decisions are hard to make, as they involve a large amount. It is imperative to know the EMI to be paid every month as it will help in planning the finances and making all financial decisions.
What Affects Loan EMI?
After calculating the EMI amount, if you think that the EMI amount is expensive for you, you would certainly want to reduce the monthly EMI amount. To decrease the amount of EMI, you would want to know the factors that affect the EMI. The significant factors are:
- Interest Rate: rate of interest undoubtedly is an essential factor while calculating the EMI amount. As said above, the interest cost is a major contributor to the EMI. It is a highly competitive factor among various lending institutions, and most of the borrowers avail a business loan from the lender offering the lowest interest rate. Therefore, it is important to explore various business loan offers and choose the one with the best offer. After a proper search, settle on the amount which is best for you. Remember, a higher rate of interest can lead to higher EMI and lower interest rate leads to lower EMI. Notably, the interest rate will also depend on the business loan eligibility.
- Loan Tenure: the second most crucial factor that affects the loan EMI is the tenure for which the loan is availed. It refers to the time period for which the loan is availed and in which the loan will be repaid entirely. A longer tenure means the principal amount is stretched for a long time and hence, the EMIs are lower. It is worth knowing that a longer tenure will also increase the interest cost. This is a dicey situation, and the decision should be made after much thought and deliberation. On the other hand, if the loan tenure is reduced, the principal amount is spread over a few months, and the interest cost is reduced. However, the EMI amount is increased. You need to try all possible combinations and choose the best suited for you.
- Loan Amount: the principal or loan amount is the major contributor of the EMI. It is the base for all the EMI calculations; it only makes some sense to tweak the amount a bit. The higher the business loan amount, the higher will be the EMI amount. And the lower the loan amount, lesser will be the EMI amount. As a business owner, you certainly have different needs which involve a lot of money. However, the loan amount should not be less than the requirement in such a way that it does not meet your purpose.
This is where the business loan EMI calculator can be extremely useful. Enter the amount you want to avail, fill the interest rate, provide the loan tenure, and you will get EMI you have to pay every month against your loan account. It is that simple!