Taking a business loan is quite a big deal. Whether the loan to expand your business or take equipment home or manage the working capital in any way, you simply have to be aware of how much money you will owe when you get the business loan. Now, such calculations can help greatly with business loan EMI calculators.
A business loan EMI calculator is an easy way to estimate the monthly repayment amount with respect to the loan amount, interest rate, and tenure. It helps you to be clear and make a decision.
We will now discuss scenarios in which using a business loan EMI calculator is inevitable and how it helps you to manage your finances efficiently.
Understanding Business Loan EMI
EMI: Equated Monthly Installment, which is the fixed amount which you pay monthly to repay back your loan. It consists of:
- Principal Amount: Which is the borrowed amount taken through a loan.
- Interest: This is the actual cost of taking a loan, which is calculated according to the amount of remaining principal.
Calculating EMI through manual methods can be complex; hence, it is advisable to make use of an online business loan EMI calculator.
What is a Business Loan EMI Calculator?
A business loan EMI calculator is a software that makes the process of calculation of EMI quite easier. With the input of loan amount, interest rate, and tenure, you can get the following immediately:
- Monthly repayment amount
- Total interest payable
- Total repayment amount (principal + interest)
It is easy to use and yields precise results, thereby facilitating proper financial planning.
When To Use a Business Loan EMI Calculator?
1. Before Applying for a Loan
An EMI calculator used before applying for a loan will provide you with an idea of your financial liability. You will be able to:
- Assess if the EMI fits into your budget.
- Steer clear of over-borrowing by choosing the right amount of loan.
- Compare loan options with different interest rates and tenures.
For instance, if you are looking at a MSME loan rate of 8% for ₹10 lakhs over five years, you will get the exact EMI and total repayment amount.
2. When You Have to Compare Loan Offers
The interest rates and the terms vary from lender to lender. With an EMI calculator, you can:
- Compare the EMIs of loans at various interest rates.
- Know which is best, floating interest or fixed interest.
- Select the lender who is going to provide you with the cheapest repayment plan.
For example, loans for MSME (Micro, Small, and Medium Enterprises) do not attract high interest, but the EMI calculation confirms whether you can afford it or not.
3. When Choosing the Tenure of the Loan
The tenure of the loan has a great effect on your EMI:
- Lesser Tenure: More EMI but lesser total interest outgo
- Greater Tenure: Low EMI but high total interest outgo
You can use an EMI calculator to try different tenures and strike a balance between optimum EMIs and minimum interest paid out.
4. Before Finalizing the Business Budget
Loan installments should not at any point affect cash flow in managing the business. It becomes very simple to plan for EMI when calculated well in advance for:
- Booking money for EMIs
- Plan other heads of expenses in the company-salary of employees, share capital, etc
- Maintain debt income ratio positive
Given that the business income is ₹5 lakhs. If the EMI amount is ₹1 lakh then you can spend appropriately for those items.
5. Balance Transfer Application
Balance Transfer It means you are transferring your existing loan to another lender who is quoting a lower interest rate. Do an EMI calculator before finalizing the decision on this since it helps you to:
- Compare the present EMI with the new EMI.
- Check the amount of interest saved.
- Avoid any processing fees and other additional charges from being more than the savings.
6. For Calculating Pre-payment
If you would like to pay some amount of prepayment on your loan, the EMI calculator will help you calculate:
- The reduction in EMI or tenure after prepayment.
- The savings in total interest payable.
Prepayment is a smart way to reduce the cost of borrowing, especially for loans with high-interest rates.
7. To Understand the Impact of Interest Rate Changes
For floating interest rate loans, the EMIs may change according to the market. Using an EMI calculator enables you to simulate scenarios of higher or lower interest rates and prepare for potential changes.
Benefits of Using a Business Loan EMI Calculator
1. Saves Time
Manual EMI calculations can be time-consuming and prone to errors. An EMI calculator provides instant and accurate results.
2. Improves Financial Planning
Knowing your EMI helps you to plan your finances better so that you do not overextend your budget.
3. Helps in Informed Decisions
By trying out different loan amounts, tenures, and interest rates, you can make well-informed borrowing decisions.
4. Improves Loan Comparisons
An EMI calculator helps you compare multiple loan offers and choose the one that best meets your needs.
How to Use a Business Loan EMI Calculator
Using an EMI calculator is quite easy:
- Enter the loan amount you wish to borrow
- Input the rate of interest charged by the lender
- Select the loan tenure in terms of months or years.
- EMI, total interest paid and total amount paid would appear on the screen instantly.
What to Consider While Using EMI Calculator
- Rate Type: Fixed or floating rates have different implications on the EMI.
- Processing Fees: The calculators may also include processing fees with the overall cost. Confirm it with your lender.
- Prepayment Charges: If there is a prepayment facility, check if the policies of the lender match the objectives of your finances.
- Maximum Loan Amount: The loan should be within the lender’s eligibility criteria.
Government Scheme with MSME Loan Interest Rates
If you are applying for an MSME loan, then you can avail of the following government schemes:
- Pradhan Mantri Mudra Yojana (PMMY): It provides credit up to ₹10 lakhs to small businesses at competitive interest rates.
- Credit Guarantee Fund Scheme for MSMEs (CGTMSE): It provides micro and small enterprises with unsecured loans.
These plans are generally available at subsidised interest rates, thereby making it cheaper for the entrepreneur.
Conclusion
A business loan EMI calculator is a must-have for an entrepreneur who is planning to take a loan. Using this tool will help the entrepreneur estimate his repayment obligation, compare loan options and make financially sound decisions.
EMI calculators show you all this with accuracy whether you are applying for new loans, comparing MSME loan rates, or getting a peek at prepay options. Proper planning by you would help in landing a loan that supports the development of your business without strained cash flows.
Always remember, before signing on the bottom line, the terms, interest rates, and applicable costs associated with the deal. EMI is sure to be well-calculated so that the loan itself becomes a stepping stone instead of burdening you.