Whether it is a large enterprise or a small business, enough liquidity is the basic requirement for every successful business. Companies require financial support for various reasons and at numerous stages, like building working capital, investing in new machinery, scaling up the business in new markets, etc. For all such reasons, entrepreneurs can raise funds through Business Loans. However, when a business owner receives a loan, they must repay it within its term through EMIs. So, calculating EMIs using a Business Loan calculator is crucial to making a robust repayment plan.
Want to know how to use an EMI calculator? Read this guide.
What are Business Loan EMIs?
Whenever we talk about loans, the first term that hits our mind is EMI. EMIs are Equated Monthly Instalments that are fixed amounts borrowers pay each month to repay the loan taken. Each EMI includes both the interest and principal of the sanctioned amount. The EMI contains a major percentage of the interest portion during the initial months of the loan term. However, as the term moves forward, the interest portion reduces, and the principal part increases.
Factors Affecting Business Loan EMIs
Business Loans EMIs depend on three primary factors of a loan plan. These include the following:
- Principal Amount: It is the total amount a business owner borrows from the lending institution.
- Interest Rate: Loan providers charge an interest rate, which is a percentage of the principal amount borrowed.
- Loan Tenure: It is the agreed duration within which the borrower must repay the principal with interest to the lending institution. The loan provider divides the total repayment in monthly EMIs depending on the tenure the borrower selects.
What is a Business Loan EMI Calculator?
A business loan calculator is an online tool that uses mathematical calculations and formulae to estimate EMIs based on the numbers entered by the user. It uses the principal amount, loan tenure, and interest rate to calculate the EMI amount borrowers must pay each month for the loan repayment. When the user enters these details in the online calculator, it displays the results within a flash second, giving the borrower an idea of their monthly debt obligations.
How Does the EMI Calculator Work?
An EMI calculator works based on the following mathematical formula:
EMI = P × r × (1 + r)n/((1 + r)n – 1)
Here, EMI is the monthly payable instalment amount, P is the principal amount borrowed, r is the rate of interest applicable on the Business Loan, and n is the number of months in the selected loan tenure. When a user enters the principal, interest rate, and loan tenure in the online calculator, it automatically calculates the EMIs and displays them on the screen.
Steps to Use a Business Loan EMI Calculator
These are the common steps to use a Business Loan calculator:
- Visit the NBFC’s website and open their online EMI calculator
- Select the principal amount you wish to borrow
- Select the interest rate the lending institution offers
- Choose a tentative loan tenure
Once the user provides these details, the online tool works in the background. It displays the EMI amount with the principal amount, interest amount, and total amount payable within a second. While playing around with the sliders, one would notice that the EMI amount increases as they select a shorter tenure while it decreases as they lengthen the term. Depending on their repayment capacity, users can reduce or increase the loan amount or loan tenure until they find an EMI amount they can conveniently pay each month.
The EMI calculator is an extremely useful tool every aspiring borrower should use before they apply for a business loan. It helps them estimate their monthly debt obligations, allowing them to make an informed borrowing decision.
Benefits of Using an EMI Calculator
Let’s look at the benefits of using a Business Loan calculator:
- Accurate data based on the entered information
- Saves time on manual calculations
- Easy comparisons within minutes
- Endlessly adjustable
- No chance of errors
Business Loans are common requirements for any small or medium-sized business. They help get the required finance immediately at reasonable interest rates. However, calculating the loan’s effective cost is important so the borrowers can plan their repayment accordingly without getting under a financial burden.
About the Author
Amaira Sharma is finance expert and former business growth strategist who has more than 8+ years experience in the industry, now she helps others to get better financial stability and standards. She loves to write useful tips on personal finance and businesses.