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Introduction

A Business Loan is a kind of financing offered by banks and NBFCs to meet your business needs. These loans can be utilized to meet your working capital needs, to purchase and acquire assets and raw materials and to expand your current business.

Business loans of Rs. 50,000 to Rs.100 crores are available for eligible businesses. These loans are repaid in equated monthly instalments or EMIs. They come with a repayment tenure range of 3 months to 7 years.

It is important to plan your business loans based on your business needs and repayment capability. Defaulting on these loans have an adverse effect on your credit score and future loan eligibility.

All the banks and NBFCs lending business loans have a Business Loan EMI Calculator to guide the borrower on the approximate EMI that he may have to pay based on the loan amount and the expected interest rate.

What is an EMI?

EMI is Equated Monthly Instalment. This is the amount you will be paying the bank every month against your loan repayment. The EMI amount comprises the interest component and the principal component. Your EMI depends on the type of interest rate applied on your loan. There are two types of Business Loan Interest Rates –

  • Diminishing Rate 
  • Flat Rate

A Diminishing Rate or a Reducing Balance Rate is levied every month on the balance loan amount. In this method, the amount on which the interest is calculated reduces every month. The below formula is used to calculate the interest:

Interest payable per EMI = Interest Rate per EMI X Remaining loan amount

This reduces the burden on the borrower with regards to the interest compound of the EMI. This also allows for faster repayment of the loan.

In a Flat Rate Interest method, the interest component of the EMI is constant until the end of the repayment tenure. It is calculated on the total loan amount and the total repayment tenure. The EMI is not reduced in this case and the borrower repays till the end of the tenure. The Flat Rate interest rate is calculated by this formula:

Interest Payable per EMI = (Original loan amount * Number of Years * Interest Rate per annum)/Number of Payments

Thus, your monthly EMI is calculated based on the following – 

  • Type of interest rate applied
  • The actual interest rate on your loan
  • Repayment tenure
  • Total loan amount

What is an EMI Calculator?

A Business Loan EMI Calculator is a specific calculator that allows you to calculate the approximate EMI you can expect on your Business Loan. 

Most banks and NBFCs have a Business Loan EMI Calculator on their official website or mobile app. An EMI Calculator requires you to enter the loan amount, the repayment tenure and the tentative interest rate to arrive at the monthly EMI you will need to pay. One has to note that this amount will not include any charges or taxes that might be levied on your EMI.

Factors affecting my EMI amount

That is a very good question and the answer is simple; to know beforehand if you can manage to pay the EMIs without any trouble! It also helps you decide on how much repayment tenure you should go for. Let us first understand the factors affecting your EMI amount.

Loan Amount: You have worked out on the total loan amount you would require for the business. Once you get the loan, you are going to be paying the EMI, which is made up of an interest component and the principal component. Higher the loan amount, higher will be your principal amount, resulting in a higher EMI amount.

Interest Rate: Business Loan Interest Rates range from 13% to 24%. Not every business loan will be given the same interest rate. Interest rate is determined based on various factors like the credit score, business financials and collateral. Higher interest rate will result in a higher interest component in your EMI and vice versa.

Type of interest rate on your loan: As mentioned earlier, there are 2 types of business loan interest rates; Diminishing Rate or a Flat Rate. Based on the type of the interest being applied on your loan, the interest component on your EMI changes. Diminishing rate will have a lower EMI and Flat Rate will have a higher EMI.

Repayment Tenure: Whether you decide to go for a shorter repayment tenure or a longer one affects your EMI amount. When you go for shorter tenures, the principal amount is spread within those months resulting in a higher EMI amount and when you choose longer tenures, the EMI amount will be low.

Why should I use the EMI Calculator before applying for a loan?

Having understood the factors affecting your EMI amount, let us delve into the advantages of using an EMI Calculator.

  • Helps you plan your financials accordingly: Business is a gamble. You cannot count on a fixed income every month. You can only chalk-up an approximate cash flow per month. So, if you know beforehand the EMI amount, it helps you to plan your financials accordingly. You are able to make better decisions on various purchases and payments.
  • Easy and simple calculation: EMI Calculators just require to input the loan amount, interest rate and the repayment tenure to give you the EMI amount. It saves you from complex calculations to find out the EMI. These calculators even give the entire amortization schedule allowing you to view when you will be able to break even on the loan amount.
  • Evaluate multiple options: The EMI calculator allows you to alter the input values to derive a suitable combination of loan amount and repayment tenure. If you find the EMI amount too high, you can change the loan amount and tenure to find the best EMI amount that will suit your needs.
  • Time saving: EMI Calculators take mere seconds to calculate the EMI amount allowing you to make decisions quickly and effectively.

What is an Amortization Schedule?

An Amortization schedule is a table that explains your loan repayment based on the EMI amount. It usually has columns for the principal repayment amount, the EMI amount, the interest component, the principal component and the balance amount. It is listed for the entire repayment tenure. The last line would show the total interest amount repaid and the total of all the EMIs paid.

This table helps you to understand how your EMI is distributed between the interest and the principal. It lets you decide on the repayment tenure so as to reduce the total interest burden.

Business Loan EMI Calculator FAQs:

1. What are the details I need to enter to calculate my EMI on the calculator?

You are usually required to input the loan amount, the interest rate and the repayment tenure to calculate the approximate EMI.

2. What will happen if I miss an EMI payment?

Missing an EMI payment will result in penalty charges and late payment charges. It will also have an adverse effect on your future loan eligibility.

3. How are monthly EMIs paid?

Monthly EMIs are usually paid through ECS facility. Banks also accept post-dated cheques. If you want to make payments on your own, you can use debit/credit card, Netbanking, Standing instructions, cheques/DDs, or any other digital payment mode to make EMI payments.

4. Will my Business Loan EMI be fixed or will it change at a later date?

Generally, business loans have fixed interest rates on business loans and so your EMI is fixed for the most part. However, if you make part prepayments, the EMI might reduce accordingly. Also, on need based business loans, EMIs are calculated only on the utilized amount and not on the entire loan amount. So, as and when you withdraw from the loan account, the EMI will increase.

5. What are the factors determining my monthly EMI?

Your Business Loan EMI is determined on the following factors –

  • Type of interest rate applied
  • The actual interest rate on your loan
  • Repayment tenure
  • Total loan amount

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