Use an EMI calculator to find the right EMI that helps you repay your loan without straining your finances. Read on to see the factors that affect your business loan EMI.
A business loan acts as a catalyst and helps your business grow and scale new heights. Whether you’re looking to fund the day-to-day operations of your business, purchase new equipment, or move to bigger office space, you can use the capital from a business loan to grow and expand your venture.
A business loan works in similar ways to other loan products like a housing loan or personal loan. The major difference is that the loan amount must be used to fund some operation of your business. Just like any other loan, you have to repay the capital borrowed in EMIs (Equated Monthly Instalments). The EMI includes both the capital amount and interest.
Take the help of an EMI Calculator
To quickly calculate the amount you have to pay back every month to repay your loan, use a Business Loan Calculator. This is an automated tool, which helps you find the sweet spot “EMI” that doesn’t end up straining your finances.
Choosing the right EMI is critical in helping you repay the loan, without paying exorbitant interests. If you choose a lower EMI then you could end up paying the loan for a long time. On the other hand, if you choose an EMI that’s too high, you could end up straining your finances, putting your day-to-day business operations in jeopardy.
This is where an EMI calculator comes to your rescue. Just by altering the various factors in the calculator, you can easily find the right EMI that’s perfect for you, without doing complicated and lengthy manual calculations.
Three Factors that Play a Role in Calculating your Business Loan EMI
In any EMI calculator, you have to enter into three key factors. They are:
- Loan Amount – This is the amount you want to borrow to grow or expand your business. Higher the amount, the higher will be your EMI.
For instance, a person who borrows 10 lakhs will have to pay a higher EMI than another person who borrows just 2lakhs.
- Interest Rate – This is the rate that your lender charges for your business loan. This is a crucial factor in determining your EMI.
While the two other factors remain constant irrespective of the lender, the interest rate varies from one lender to another. Even for the same lender, the interest rate changes from one borrower to another.
- Loan Tenure – This is the final factor that determines your EMI payments. The tenure is the period of repayment. It can vary depending on your preference. The rule of thumb is that longer the tenure, lower are your EMI payments.
The maximum tenure for business loans in India is five years. You’ll have to pay a higher EMI when your loan tenure is just two years, compared to a tenure of four or five years.
Now, that you’ve understood the factors that play a role in your EMI, let’s take a look at the,
EMI schedule of your Business loan
EMIs are equal instalments you pay every month till you repay your loan completely. Each payment comprises both the capital and the interest. However, the percentage of interest and principal in each payment keeps on varying.
During the initial periods of repayment, the interest component has a higher percentage, while the principal part is low. The reverse is true during the latter stages. That’s why most borrowers are shocked to see that a significant portion of their loan amount is outstanding, even after paying several EMIs.
Usually, you repay only 16-18% of your loan during the first year of a five-year business loan. Let’s assume that you take a business loan of 10 lakhs for five years but prepay your loan after three years, you’ll still have to repay around 5 lakhs or more.
That’s why you must pay attention to the EMI amortisation table while taking a loan.
The benefits of an EMI calculator are many – it saves you time that you have to spend on doing cumbersome manual calculations, gives accurate results, helps you evaluate your repayment schedule and above all, helps you plan your finances.
So, make sure to use an EMI calculator and decide on the right EMI that fits your budget and business.