How to Use a Business Loan EMI Calculator for a New Business?

Any business’s ability to grow and expand depends on having enough money. The criteria are the same, whether you need money to invest in a new product your firm is producing, build new branches of your business, digitise your business’s procedures, or any other purpose. You can meet your company’s financial needs by applying for a business loan. Yet, failing to pay a business loan affects more than your reputation; it also raises the number of outstanding instalments due. Thus, before you apply for a loan, it is crucial to calculate and plan your EMI.

A business loan EMI calculator is helpful in this case. Giving a realistic picture of the monthly loan payback responsibilities helps structure your organisation’s monthly budget and expenses. You can select the amount and term of your business loan using the online EMI calculator. In this article, we will discuss the functions of a business loan EMI calculator and how you can use it.

What is a Business Loan EMI Calculator?

The EMI calculator computes the precise EMI that must be paid throughout a loan for both the interest and the principal loan amount. Lenders and customer websites feature a fast-access tool that helps streamline the EMI calculating process to make it easier.

The business loan EMI calculator uses an equation that consists of three fundamental parts (loan amount, interest due, and the loan term). This calculator has the advantage of being easy to use and understand. Users only need to provide the essential loan information once to receive an instantaneous calculation of their monthly payment.

The business Loan EMI calculator can contrast various business financing offers. The users enjoy this since it makes it simple to choose which loan offer is better for them — a more considerable loan at a lower business loan interest rate with a lower monthly payment.

How are the Costs of the Loans Determined?

As mentioned above, three criteria must be considered to determine your payment amount. These three factors are the loan amount, interest due, and the loan term.

A commercial loan EMI calculator can determine the monthly payment schedule once this information is gathered. When you get a loan, you will receive an “amortisation schedule” that compiles all this information into a simple table.

The loan amount, the interest you will pay each month, and the total amount still owed after each month is distributed according to the amortisation schedule. You may efficiently utilise a business loan EMI calculator to know the necessary monthly repayments because the amortisation plan is made public once a loan is sanctioned.

How to Estimate the EMI for a Business Loan?

A loan is paid back in equal monthly instalments, or EMIs, which include both the interest and principal portions of the loan. The loan amount, the length of the loan (or term), and the rate of interest that will be charged on the loan are the three primary factors used in a typical formula to calculate the monthly interest payment.

The mathematical procedure for calculating business loans is described below and is based on these factors.

EMI is defined as P x r x [(1+r)n-1]/(1+r)n]

In the formula above,

P stands for the loan amount that the lender has provided.

R is the interest rate the lender will charge for the loan. The interest rate is treated as a monthly rate for this computation. Hence r is calculated as r/12/100.

n is the loan’s duration or tenure, and it is displayed as the total number of months over the term (for example, an assignment of 10 years is represented as 120 months in the above formula).

To comprehend the formula above, let’s look at an example.

Company A has requested a long-term business loan from DEG Bank for Rs. 50,000,000 with a 10-year term and an annual business loan interest rate of 8%. In this case, the EMI will be calculated as,

EMI = 5000000 0.006667 {(1+0.006667)^120 / [(1+0.006667)^120 – 1]}

EMI = Rs. Rs. 60,664.

How to Calculate Business Loan Interest Rates in India?

While applying for a business loan in India, the lending companies charge a fee, also commonly an interest rate added to the loan amount. The percentage of the total loan amount is used to represent the interest rate. Your lender will provide you with two different interest rates when you apply for a loan: a nominal interest rate and an annual percentage rate (APR).

The nominal interest rate is the interest the lender charges every year. APR represents the overall yearly loan repayment costs, considering all associated loan fees, interest, and commissions.

When compounding is considered, the effective business loan interest rate also reveals the total cost of a loan. The following mathematical formula is used to determine the effective interest rate:

(1+r^n)-1

Where r denotes the periodic rate of interest.

Loan EMI influencing variables:

Loan Amount: The amount/capital of the loan, also known as the principal amount, is the amount of money/cash you agree to borrow or the sum your lender has authorised. It is crucial to determine the monthly repayments. When the loan amount rises, the EMI payment follows suit.

Rate of Interest: Many variables, including the borrower’s age, income, credit history, and repayment capacity, are considered when calculating the business loan interest rate. However, this could differ from one lender to the next.

Loan Tenure: As the loan repayment period is extended, the EMI cost changes significantly. The monthly EMI decreases if a borrower chooses a more extended repayment period and vice versa. However, a longer loan term results in a higher interest component.

If you alter the loan amount or the repayment period, you can also calculate the difference in the sum. You can’t afford to make a mistake. Thus, this sum needs to be entirely correct. Things can go wrong for you if you take out a loan you can’t afford to pay back. The simplest way to avoid such circumstances is to use a calculator created with this need in mind.

Conclusion

Loans are a typical component of all businesses. They can assist customers in obtaining quick financing at a lower rate. To ensure that the firm can plan its spending appropriately and that loan repayment does not become a burden, it is crucial to test the effective cost of each business loan before choosing it. Try this business loan EMI Calculator to calculate your EMI, monthly instalments, and due diligence of your Loan.

Do you need funding to expand your business? Applying for a business loan should be easy with the appropriate knowledge and direction! This article outlined the steps for applying for a business loan so that you can acquire the funding your business requires.