To run a small business successfully, there is a need for a large amount of money. While most business owners generally start a business with their savings, there comes a time when the business requires more infusion of funds. These funds can come in the form of a business loan. Many financial institutions operate in the market that offers small business loans. But it is imperative to do proper research before zeroing in on a lending institution.
Since availing a business loan puts an additional burden on the shoulders of a business owner, the lenders have come up with a way to help them. These organisations provide business loan EMI calculators to calculate. The EMI calculator helps find out the EMI that they will have to pay every month towards the loan account. Thus, they can decide whether or not avail a loan for business.
Let’s understand this further.
What is a Business Loan EMI?
Equated Monthly Instalment or EMI is the monthly payment paid by the borrower to repay the loan. An EMI consists of the principal amount and the interest accrued on it. And the interest is calculated for the time period for which the loan is availed.
What is a Business Loan EMI Calculator?
When you plan to avail a business loan, you must have a loan amount in mind and the tenure for which you want to avail it. With that, you must also know what your EMIs must be. An online EMI calculator will be beneficial in this case. Mostly, business loan calculators have three main variables – loan amount, loan tenure, and interest rate.
For example, if you plan to avail a business loan of Rs. 3,00,000 for two years at an interest rate of 15%, you need to enter all these variables in the EMI calculator. So, the EMI amount would be Rs. 24,244 and the overall interest amount would be Rs. 82,840.
How does the EMI Calculator Work?
The following is the formula to calculate business loan EMI:
EMI = P X R X (1+r)n / (1+r)n-1
- P = Principal loan amount
- R = Rate of interest
- N = Tenure of the loan
With this formula, calculating EMI can be a cumbersome task. So, an online EMI calculator can be very helpful for small business owners. Using this calculator is very easy. Just enter the details, and the online tool would display EMI. The work is done with just a click. This helps you plan your borrowing capacity with ease.
What are the Benefits of EMI Calculator?
- Easy to Use: EMI calculator saves you from the tedious task of calculating EMI. Gone are the days when you had to take paper and pen to calculate the monthly payments towards your loan account. Now, just enter the details, click CALCULATE, and the work is done for you. Loan EMI calculator does all the work for you.
- Visualisation: most loan lenders offer their EMI calculators with the feature of visual representation, in terms of pie charts and diagrams. The visual representation makes it is easier to understand than written communication.
- Financial Planning: generally, running a business is risky, and nobody knows what may happen next. It is hard to make the final decisions related to a huge amount of money without knowing what may happen next. If you are unable to pay a loan in future, it may impact your business negatively. With the loan EMI calculator, if you know how much EMI you have to pay every month and the interest accrued on it, you will find it easy to plan your business financials.
What Factors Effect your Loan EMI?
When you calculate your EMI and find it a bit higher to afford, you would next look for ways to reduce it. This is understandable. Let’s take a look at several factors that majorly affect your loan EMI:
- Rate of Interest: Without any doubt, interest plays a significant role when you calculate the EMI amount. It is one of the major contributors to your EMI amount. Notably, the rate of interest is a competitive factor among all the lenders. The lower the rate of interest, more likely the customers are interested in availing a loan.
- Loan Tenure: Loan tenure also plays a major role while calculating an EMI. Loan tenure is the time period for which the loan is availed. The interest is calculated on the principal loan amount for the time period for which the loan is availed. It is the time period that you will take to repay the loan. Notably, a longer time period means the payments would be stretched over a longer time period, resulting in lower EMIs, and vice versa.
Loan Amount: Now, the most important factor in EMI calculations and a major contributor to EMIs. Overall EMI calculation is based on the principal loan amount. As per the formula stated above, if you want to lower your EMI, it only makes sense to reduce the principal loan amount.