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Tata Capital > Blog > Loan for Business > Beginner’s Guide on How to Calculate EMI for Business Loan

Loan for Business

Beginner’s Guide on How to Calculate EMI for Business Loan

Beginner’s Guide on How to Calculate EMI for Business Loan

Starting and managing a business requires you to make numerous critical decisions. And, one among such decisions is an arrangement of funds. Money plays a very crucial role in starting and sustaining a business. It is required to maintain operations, for expansion of your business, for marketing, research, and development, besides many other requirements. Financial aid is a must for the launch and success of all types of businesses, be it small, medium or large-sized business. Hence, MSME loans (Micro, Small and Medium Enterprises loan), and SME loans (Small and Medium Enterprises loan) also become a part of it. And remember, business requires a huge quantum of money. To this, banks and non-banking finance companies come by as a respite, for they act as the source from where you can borrow the required amount of fund. Yes, you can borrow, i.e. you can avail a business loan from a bank or a non-banking financial company to run your business and repay the amount to the lender within a decided tenure on the basis of equated monthly installment, popularly referred to as EMI.

A business loan is a long-term financial aid or an arrangement for a large funding where the applicant receives the required amount upfront, unlike overdrafts that are the short-term financial aid of smaller amounts. Business loans can be considered similar to other loans like home loans, car loans etc. in terms of mandatory factors such as eligibility criteria, the rate of interest, EMIs, and credibility criteria. Though each of the mentioned factors can be considered being of equal importance for a smoother processing of loan application, here we will specifically take a look at the need to calculate and assess EMI pay-outs while availing a loan.

Whether a loan is being sought for large or MSME business, the borrower has to repay the loan amount to the bank or the non-banking financial company in the form of EMI. The EMI is calculated including the interest rate levied on the loan amount. The business loan EMI can either be fixed or variable depending on your ease of repayment. However, you must remember that it is a considerable amount of money that you will have to shell out on a monthly basis without affecting the business operations. This is why it is advised to calculate the EMI before applying for a loan. Many banks and non-banking financial companies offering business loans provide an EMI calculator using which you can easily calculate EMI and thereby assess your repayment capability as shown below:

This kind of EMI calculators instantly provide you an approximate idea of what is the maximum loan you can borrow without affecting the funds required for your business.

Different lenders provide different types of business or MSME loans ranging from start-up loans, working capital loans, term loans, to overdraft. Start-up loans are ideal for entrepreneurs who are seeking a loan to start their new venture. Working capital loans are suitable for businesses that require funds for daily expenditure such as salaries and wages, rent, and also for meeting seasonal business demands. Term loans are generally availed to purchase business tangible assets like land, machinery, and equipment. Overdraft is a facility that helps businesses to meet unforeseen expenditure or event wherein as a borrower you can withdraw more than the funds you have deposited in your account. It is like an extension of credit within a stipulated limit. As each type of loan has its specific financial functionality, you must wisely and practically assess the needs of your business, conduct a thorough research of various MSME loans and SME loans offered by lenders including the interest rates, before choosing the type of loan and the lender. This will safeguard you from unnecessary burden during business loan EMI pay-outs.