Thinking about starting a business? If you answered yes to that question, you must know that running any business takes a lot of resources. It needs manpower, raw material, commercial space, licenses, and many other things. But the one thing it needs more than anything else is capital or monetary funding.
There are many ways in which you can get this funding. One of the most popular ways to get money is through business loans. You can go to the bank of your choice and ask them to fund your business.
This loan can then be repaid in EMIs. An EMI is nothing but an Equated Monthly Installment. It means that you can pay off your loan by breaking it down into small parts which you pay every month. This makes the whole process of paying off your loans easy, but if you miss an EMI payment, it can lead to some problems.
Not paying your EMI on time can affect your credit score. It can also result in a fine which isn’t ideal. Thus, you must know exactly how much EMI premium you have to pay every month. It can help you better plan out your expenses and other aspects of your business.
In this article, we will be taking a look at everything you need to know to calculate your EMI for your business loan.
How Are EMIs for Business Loans Calculated?
We can’t talk about calculations without getting into formulas, can we? There’s a simple formula that can be used to calculate the EMI for your business loan.
It goes like this:
EMI = P x r x (1+r) n / (1+r) n-1
Now, this may look a bit intimidating so let us break it down and understand what this formula represents.
The EMI you pay on your bank loan depends on various factors – the principal loan amount, business loan interest rate, and the general period of the loan. The above-mentioned mathematical formula is to simplify the calculations.
The formula has three main terms. These are as follows:
- P – The P in the formula stands for the principal loan amount. This is the total amount of money you are borrowing from the bank. It is also the base sum you agree to repay.
- R – The business loan rate of interest. A percentage often denotes this. The business loan interest rate is the amount that the bank charges you for borrowing the money. Business loan interest rates vary based on the bank, type of loan, period of the loan, and many other factors.
- N – The period of the loan. Also known as loan tenure, this is the total time for which you are taking the loan. For instance, if the loan tenure is ten years, it means that you are willing to pay off your loan in ten years. For these ten years, you have to pay the EMI.
All three of these factors, together, are put into the above mathematical formula. On solving it, you will get your monthly EMI amount.
But let’s be honest, everyone isn’t a maths wiz. Calculating the EMI for your business loan, all by yourself can be a bit challenging and may also be prone to errors. This is why, to make the process easy, you can use an online Business Loan EMI Calculator.
What is a Business Loan EMI Calculator?
A business loan EMI calculator is a simple tool that is available online. With the help of this calculator, you can calculate the approximate EMI you will have to pay every month.
These Business Loan EMI calculators are easy to use and you can find them with one quick search. Most major banks and financial websites offer the tool for free.
To use the business loan EMI calculator, you will need to know three things. These are the principal loan amount, the business loan interest rate, and the loan tenure. After you put in these values, the calculator provides an EMI estimate you will be paying.
Use the following steps to use a Business loan EMI calculator:
- Step 1 – Open any online loan EMI calculator. You can open it on any search engine on your web browser.
- Step 2 – Use the slider or the input box to enter your principal loan amount (P).
- Step 3 – Add the business loan interest rate (R) similarly. The interest rate depends on the terms of your loan and the loan provider.
- Step 4 – Enter your estimated loan tenure period (N) – this is the total amount of time you need to pay back your loan along with the interest.
- Step 5 – Double check all the values you have entered and hit the calculate button.
The online calculator will take care of all the work and display the estimated EMI amount. Using an online business loan EMI calculator makes the whole process easy. Once you understand the approximate EMI amount, you can plan out other aspects. It can help you keep better track of things.
Please note that most online calculators can only provide you with an approximation. The actual EMI that you will have to pay may vary. Once you have decided upon the loan terms, your bank or the loan provider will share the exact EMI amount.
This article informs readers about business loan EMIs and how they can use a business loan EMI calculator.
Calculating and understanding your EMI before taking a loan is an important step. We recommend using the online business loan EMI calculator tools. These are better and quicker than manual ones.
On-time payment of your EMI is a very crucial thing. If you are unable to pay off your EMI on time, it can lead to many unwanted problems. Always make sure that the loan terms suit you and your repayment capabilities.
At Piramal Finance, you will find authentic and personalized information on financial products and services, including personal loans and financial calculators. Check out our other articles to learn more about various loans, insurance, investments, etc.