Knowing the potential liabilities before applying for a loan is essential. If you know the EMI beforehand, you can adjust your business expenses accordingly to ensure your account has sufficient balance on the EMI due date. For example, if you anticipate a substantial EMI based on your requirements, you may avoid holding raw materials in advance and blocking your capital. But the question here is: how do you compute your EMI? There are two methods: manual calculation and online calculation via a business loan calculator. We will discuss both here.
How to Calculate Business Loan EMI Manually?
If you prefer the traditional approach over digital, you can use the following formula to compute the EMI.
EMI = [P * R * (1 + R)^n] / [(1 + R)^n – 1]
Where:
P = Principal
R = Interest rate (monthly)
n = Loan tenure
Now, suppose you are planning to obtain Rs 1,00,000 in a business loan and expect an interest rate levied on your profile to be 10%. The repayment period you wish to choose is two years (24 months).
The EMI computation will be as follows:
P = Rs 1,00,000
R = 0.83% (10% ÷ 12)
n = 24
Let’s input these variables in the formula to arrive at the output.
EMI = [Rs 100,000 × 0.83% × (1 + 0.83%)^24] / [(1 + 0.83%)^24 – 1]
Considering the general mathematics rule, we will first compute the exponents, then proceed with multiplication, then division, and lastly subtraction.
EMI = Rs 5,292.78
How to Calculate Business Loan EMI Online?
You can compute your monthly business loan obligations online by providing the loan variables on the EMI calculator. Let’s break down the steps.
Step 1
Search for your preferred lender on your web browser by typing the brand name in the search box. Next, scroll down to the results and click on the official website.
Step 2
On the webpage, move the cursor to the product section and click ‘Business Loan.’ Keep scrolling down the business financing webpage until you arrive at the calculator.
Step 3
In the first column, enter the amount you wish to borrow. You can do this by moving the slider to your right. Ensure the amount is within the maximum lending limit the lender has specified.
Step 4
Enter the rate of interest. Ensure it is not below the minimum rate outlined by the lender on their website. For example, if you wish to apply for this loan with Godrej Capital, the interest rate starts from 17%.
Step 5
Mention the repayment period. Business loans are usually short-term financing with a maximum payback duration of five years. However, since you have flexibility in choosing the tenure, you can experiment with different combinations to see how your EMI and interest payable amount change.
Manual Computation vs Business Loan Calculator: Which is Better?
To get an answer to this, let’s consider some parameters.
- Customisation
You can personalise the loan EMI calculator by entering different combinations of variables as many times as you need. The lender does not impose any restrictions on this. This makes it easier for you to decide on the ideal tenure.
Remember, the repayment tenure directly impacts your budget. A longer tenure results in a substantial amount payable as interest, while a shorter tenure leads to higher EMIs. Customisation helps you balance between EMI and interest payable, ensuring it does not strain your business cash flow.
However, if you were to compute the EMI for different combinations manually, you would need to be involved in lengthy computations, which, most of the time, is not feasible.
- Error-Free Results
EMI calculators are quick and provide results that are free from errors, provided that the inputs you provide are correct.
On the other hand, since manual computation involves many steps, don’t be surprised if you obtain incorrect results.
- Accessibility
Calculators are accessible 24/7. You only need stable internet and a laptop or smartphone. With such convenience, prioritising online calculations over manual methods makes sense.
Other aspects of Business Loan Calculators
Loan calculators are not restricted to EMI computation. You will find them in various forms on the lender’s website. For example, there is a prepayment calculator that helps you understand how much you will be able to save in interest payments if you make a partial or complete foreclosure of your outstanding debts. Similarly, when you apply for a business loan, an eligibility check calculator gives you a rough idea of whether you will qualify for a loan with a particular lender.
Conclusion
EMI computation can be done both manually using a mathematical formula and an online EMI calculator. However, when comparing both methods, online tools are better. They are quick, reliable, and accessible 24/7. However, remember that online tools do not factor in costs other than the interest rate associated with borrowing.
