How to Make Best of the Flexi EMI Option

The world of business is all about competition. To become successful, you must constantly be on the lookout for new ways to reduce cost, enhance efficiency, and boost the profits of your business. No business can be run without borrowed funds. Normally, all entrepreneurs focus on interest rates, low collateral requirements, long repayment tenure, and speedy processing when comparing business loans options.

Going beyond the obvious and focusing on flexible repayment options can be an ace up your sleeve that can help you steal a march over your competitors. Tata Capital offers four Flexi EMI options that, if used properly, can prove to be a game changer for your business.

Step Up Flexi EMI plan

From the local kirana store to the biggest company-all businesses must grow to survive. If your business has grown consistently by 10%-15% every year, then it is not unreasonable to assume that the trend will continue in the future as well.

The Step Up plan allows you to use your annual growth to your advantage. Instead of paying a fixed amount per month throughout the tenure of the loan, you can opt for an annual increase in your EMIs.

Approximate EMI for a term loan of Rs. 25 lakhs for 7 years at 12% interest works out to Rs. 44,500. The Step Up plan allows you to increase the EMI amount to Rs. 50,000 in the second year, Rs. 55,0000 in the third year, Rs. 65,000 in the fourth year and so on. To know how much EMI you'd have to pay, click here.

The benefits of this plan include:

• Smaller payments in the initial phase with higher payments as the business grows.
• Interest savings without unrealistic repayment targets.
• You become a better entrepreneur who can plan towards the specific goal of reducing business liabilities.

Step Down Flexi EMI plan

Paying more as your business grows makes sense. However, you may, for numerous reasons, want to leverage your existing strong market position to reduce your debt as quickly as possible. In this case, you can pay a higher EMI today and choose to pay lower amounts in succeeding years.

Since interest cost is highest in the initial years, bearing a higher EMI burden today can help you save a lot over the long run. So, you can start with an EMI of Rs. 75,000 for the above-mentioned loan and reduce the repayment amount every year until the loan is fully repaid.

The benefits of this plan include:

• Push yourself hard when the going is good to ensure you are debt free when business environment becomes tougher.
• Ideal for established businesses seeking to expand operations.
• Utilize present financial capabilities instead of relying on uncertain future incomes.

Bullet Flexi EMI

The first two options are for those who are in a position to anticipate growth in profits or have enough cash to pay a higher EMI in the initial phase. The Bullet Flexi option is for those who want to use unexpected incomes towards loan repayments. Paying an additional Rs. 50,000 at the end of the first year of the above-mentioned loan will result in savings of Rs. 1 lakh on the interest cost.

Considering the fact that any savings will get reinvested in the business, using the flexi EMI option can result in exponential benefits for your business spread over a long period of time. The benefits of this plan are numerous.

• Sensible way to use unexpected incomes. Repaying debt quickly is always a smart business move.
• No compulsion or obligation to make additional payments.
• No prepayment penalties since the option of making bullet payments is inbuilt into the contract.

The idea of paying a fixed amount every month for years together may be suitable for salaried individuals with predictable and regular income. An entrepreneur must be prepared for ups and downs and must choose repayment options that combine flexibility with savings.

Short-term debt is a useful tool to meet recurring expenses like payments to employees and creditors. Long-term debt is preferable to equity dilution for building the necessary infrastructure to establish and manage the business. Flexi EMI plans offer the dual benefits of predictable and stable monthly repayments with flexible incremental payments for greater savings.