Whether it is a small business or a large company, the basic requirement for any successful business is having enough liquidity. A business will require financial assistance at various stages and for numerous reasons like investment in new plant and machinery, meeting working capital requirements, scaling up the business to new heights, etc. For every such reason, business owners have the option to raise funds through loans or by selling a portion of their equity. When a business loan is issued to any entrepreneur, they have to repay the loan within its tenure through EMIs.
Below is the meaning of EMI and the need for an EMI calculator.
What is business loan EMI?
Any loan given to the business owner for their business is known as a business loan. This loan can be in the nature of a short-term loan or a long-term loan depending on the business requirements. The rate of interest also varies based on its nature and other parameters like the credit score of the applicant, the amount and tenure of loan, lender guidelines, etc.
The loan along with the interest component has to be repaid in equal monthly installments over the tenure of the loan which is known as EMI. EMI is calculated on the reducing balance method which means that interest is calculated on the outstanding amount of loan at the beginning of the year.
Therefore, as the loan repayment progresses, the interest component keeps reducing and the principal component keeps increasing in the total EMI. This makes it a bit difficult for a layman to understand and derive a number that is not only equal throughout the tenure of the loan but also has the interest and principal amount in the right proportion.
How to calculate business loan EMI?
As mentioned above, EMI is the payment of a loan in equal installments and it is the combination of interest and principal portion of the loan. The calculation of EMI is based on a standard formula on three main components that form the essence of the loan namely, the amount of loan, the tenure or the period of the loan, and the rate of interest applicable on the loan.
Based on these parameters, the mathematical formula for calculating business loans is mentioned below.
EMI = P x r x {(1+r)^n/ [(1+r)^n-1]}
In the above formula,
P represents the loan amount given by the lender.
r represents the rate of interest charged by the lender for the loan. For this formula, the rate of interest is considered as a per month rate, therefore, r is calculated as r/12/100.
n represents the period or the tenure of the loan and is shown in the form of the total number of months in the tenure (for example, tenure of 10 years is represented as 120 months in the above formula).
Let us consider an example to understand the above formula.
Company A has applied for a long-term business loan of Rs. 50,00,000 from DEG Bank at the rate of 8% per annum for a tenure of 10 years. The EMI in this example will be calculated as,
EMI = 5000000 * 0.006667 * {(1+0.006667)^120 / [(1+0.006667)^120 – 1]}
EMI = Rs. Rs. 60,664.
What is a business loan EMI calculator?
The above calculation shows the exact amount of EMI that has to be paid by the borrower throughout the period of a loan towards the interest as well as the principal loan amount. To ease this calculation, lenders and customer awareness websites host a quick access tool that can simplify the EMI calculation process. This tool is known as the business loan EMI calculator. It uses the three basic components as per the above equation. The benefit of this calculator is that it is simple to understand and does not require any expertise to operate. Users simply need to provide the necessary details of their loan to immediately get the EMI amount payable by them. This tool can be used multiple times and can also act as a mode of comparison between competing business loan offers. This helps the users in their decision-making process as they can calculate easily which is a better loan offer i.e. higher loan amount at a lower rate of interest and thereby lower EMI.
How to use the Fisdom business loan EMI calculator?
Fisdom also provides a business loan EMI calculator for the users to have quick access to business loan EMI calculation. This tool is available on the website under the tab ‘Resources’ on the homepage of the website.
The steps for using the Fisdom business loan EMI calculator are given below.
- Visit the Fisdom website and click on the ‘Resources’ tab on the homepage.
- Under this tab select ‘Business loan EMI calculator
- The user will need to provide the following basic details of the loan,
- Amount of loan
- The interest rate on the loan
- Period of loan
- After providing the above details the business loan EMI will be immediately calculated and displayed on the screen of the user.
Conclusion
Loans are a common feature of any business. They can help them get immediate finance at reduced costs. However, while opting for any business loan, it is important to calculate the effective cost of such a loan so the business can plan their expenses accordingly and the repayment does not become a burden.
FAQs
Yes. The business loan EMI calculator can be used by any person having a small-sized business or a large scale company.
Yes. Fisdom business loan EMI calculator is available free of cost on the website for the use of any entrepreneur and can be used multiple times to calculate loan EMI.
Business loan EMI calculator helps the borrower get the exact EMI amount on any loan based on its interest rate and period of the loan. This helps the borrower plan their expenses accordingly to ensure that they can timely repay the loan as per the repayment schedule without any hassles or delays.
A business loan can be a secured or an unsecured loan depending on the tenure and various other parameters like the purpose of the loan, lender’s guidelines, etc.
