Most of us know how to apply for a business loan. The next question that comes to our minds is the amount that we will have to pay as EMIs. And this is where a business loan EMI calculator proves to be a handy online tool.
Regardless of the loan product you opt for, successfully managing it requires careful budget planning. You need to ensure that each of your EMIs gets deducted on time without disrupting your cash flow. For this, the amount you borrow through a business loan and the repayment tenure you choose must align with your revenue stream and requirements. The business loan calculator is crucial in helping you with the loan selection process.
What is a Business Loan EMI Calculator?
A business loan calculator is a built-in tool available on the lender’s website. As the name implies, you can use this tool to determine your possible monthly obligations even before you apply for a business loan. The three key components required to use the loan calculator are —
- Loan amount: If you have yet to apply for a loan, you can mention any amount within the minimum and maximum loan brackets mentioned on the lender’s website.
- Interest rate: On the lender’s official website, you can enter the minimum interest rate they levy to get a fair idea of your obligations.
- Tenure: The minimum and maximum duration within which you can close your loan is specified on the website. Use different combinations of tenures to understand their implications on your budget.
How Does a Business Loan EMI Calculator Work?
The loan EMI calculator uses the following mathematical formula to display the results:
EMI = P × r × (1 + r)^n / ((1 + r)^n – 1)
Here,
- P refers to the sum you wish to borrow.
- r denotes the rate of interest applicable to your profile.
- n is the payback duration.
Even if you have to compute the EMIs manually, you should use the same formula as above.
Remember, when manually calculating EMIs for different tenures and loan amounts, there is a high likelihood of incorrect results.
Benefits of Business Loan EMI Calculator
The following are the advantages of utilising a business loan EMI calculator —
- Easy to Use
You don’t need to take any tutorial to learn how to use an EMI calculator. Simply go to the lender’s website, move to the business loan webpage, look for the calculator, and enter the required inputs. The results will be in front of you.
- Convenient
If you had to visit the lender’s branch office in person to find out about the EMI for different tenures, you would need to spend towards fuel charges, take a day off from work, and wait hours for an executive to respond to your request. With EMI calculators, you can avoid these hassles. Using a loan EMI calculator requires only a smartphone with a stable internet connection. Moreover, this tool is accessible 24×7.
- Accuracy
If you were to compute the loan for business EMI manually, you would need to perform complex mathematical computations on paper. Since there are various steps in offline computation, the possibility of making an error is high. Not only that, manual computation for combinations of tenures is not feasible, as it would take hours to show the output.
- Budgeting
Regardless of the type of loan you apply for, the repayment tenure directly impacts your budget. If you extend the payback duration, the interest payable will increase substantially.
Let’s illustrate this with an example.
Suppose you want Rs 50 lakh to set up a new office space. After reviewing your business’s creditworthiness and revenue stream, you estimate your interest rate to be 17%. However, you are unsure about the ideal tenure and decide to use a calculator, only to find the following numbers.
Parameters | Repayment Tenure | ||||
| 1 Year | 2 Years | 3 Years | 4 Years | 5 Years | |
| Principal Amount | Rs 50,00,000 | Rs 50,00,000 | Rs 50,00,000 | Rs 50,00,000 | Rs 50,00,000 |
| Interest Rate | 17% | 17% | 17% | 17% | 17% |
| EMI | Rs 4,56,024 | Rs 2,47,211 | Rs 1,78,264 | Rs 1,44,275 | Rs 1,24,263 |
| Interest Payable | Rs 4,72,285 | Rs 9,33,072 | Rs 14,17,491 | Rs 19,25,210 | Rs 24,55,773 |
| Total Payable | Rs 54,72,285 | Rs 59,33,072 | Rs 64,17,491 | Rs 69,25,210 | Rs 74,55,773 |
You can see here that if you extend the repayment tenure, your interest burden increases significantly. On the other hand, if you opt for a shorter tenure, your EMI burden will increase.
Conclusion
Using a business loan calculator helps you plan your finances better by accurately estimating monthly repayments. This tool ensures you choose a loan amount and tenure that aligns with your budget and cash flow, avoiding financial strain. It is simple to use, convenient, and provides accurate results, helping you make informed decisions without manual calculations. Ultimately, it aids in managing your loan effectively, ensuring timely EMI payments and financial stability.