Business Loan EMI: Key Facts To Know and Improve Financial Planning

Turning your passion into a full-fledged career is a dream for many stuck in other jobs. Thanks to Business Loans, now anyone can start their own business without emptying the bank account. With the booming trend of start-ups, getting funds for your venture has become more accessible with easy-to-meet business loan eligibility terms. Before taking the plunge, it is essential to familiarize yourself with the eligibility criteria and EMIs to make a well-informed decision.

What Are Business Loans?

A business loan is a financial assistance a bank or NBFC provides to support a business's economic goals, such as expansion and additional investments. It aids in meeting immediate growth requirements and sustaining business operations, products, and services. You can utilize the loan for business equipment, infrastructure development, hiring, or managing cash flow. Business Loans enable smooth company operations and capitalize on market opportunities. In India, small and medium businesses often depend on the banking sector, which offers secured or unsecured business loans in the following forms-

Term Loan:

A common form of business financing, secured or unsecured, with terms ranging from 1 to 5 years for unsecured loans and up to 15 to 20 years for secured loans, mainly used for capital expenditures.

Start-Up Loan:

Intended for budding businesses, considering personal and company credit history, turnover data, and other factors to determine the loan amount, term, and interest rate. Evidence of business existence and licensing is required.

Working Capital Loan:

For small businesses to cover cash shortfalls, ensuring smooth cash flow during off-seasons or busy periods, commonly used by service providers, producers, distributors, merchants, and traders involved in exports and imports. Specialized business loan programmes for women entrepreneurs, offered by some banks and the Indian Government, provide customizable loan amounts, discounted interest rates, and faster application processes to encourage and support women in starting small and medium-sized enterprises.

Eligibility For Business Loans:

Meeting the lender's prescribed eligibility criteria is crucial to secure approval for a business loan. Loan providers evaluate your business profile based on various factors, making awareness of these criteria essential for a smooth approval process. Generally, the accepted eligibility criteria for a business loan include

self-employment in manufacturing,
partnership, service, or trading sectors,
a minimum age requirement of 25 years (varying across lenders),
a maximum age limit of 65 years,
a stable profit record in the last two years,
a minimum turnover of ₹10 Lakhs, and
submission of income tax returns for at least one year by the firm.

Documents Required For Business Loan:

To avail of a business loan, you'll need company documents (PAN Card, address proof, GST registration), proprietor/partner/director documents (identity and address proof), income documents (2 years' ITR, Profit/Loss statement, Balance Sheet), and 12 months' bank statement. In this, the income document duration may differ among lenders.

Business Loan EMI:

EMI, equated to monthly installments, is the monthly repayments against your business loan amount. It is generally calculated using the formula-

EMI formula: EMI = [PI(1+I)^n] / [(1+I)^n-1].

where

P = Principal / Loan Amount.
I = Monthly Interest Rate (Annual rate divided by 12).
N = Number of monthly installments

Planning business loan repayment is crucial to maintaining a good credit score. Use a business loan EMI calculator to calculate monthly installments accurately. Enter the loan amount, interest rate, and tenure for instant results. Plan your business loan EMI and repayment effectively to meet your business needs.

You can also reduce the EMI amount when taking a business loan by-

Refinancing Your Business Loans:

Refinancing your current business loans can be smart if you have multiple loans with challenging EMI payments. By getting a new loan at a lower interest rate, you can conveniently repay existing loans, potentially reducing the overall loan cost compared to multiple loans. This also relieves the burden of multiple EMIs and repayment stress.

Negotiate For Lower Interest Rates:

A high CIBIL score enables negotiation for a lower interest rate on business loans. Always read the loan terms and conditions to negotiate effectively with the lender, especially if you have a good relationship with them, which can indirectly reduce your EMI burden.

Look For long Tenure:

Opting for a long tenure for your business loan spreads the total EMI amount over a longer period, reducing monthly installments. However, while this decreases short-term EMI, the overall amount payable on the business loan will increase.

Balance Transfer:

Reduce your monthly EMIs through a balance transfer. Transfer your business loan to another lender to benefit from lower interest rates and ease your EMI burden. Many financial institutions now offer balance transfer facilities to help you save on EMIs.

Prepayment:

Make early prepayments to save on interest and reduce your business loan burden. If your business becomes profitable after taking a loan, consider prepaying the loan to lessen your monthly EMI obligations.

Market Research:

Conduct thorough research to find financial and non-financial institutions offering competitive interest rates on business loans. Before approaching lenders, explore different business plans, as this can help reduce your business loan EMIs.

Conclusion:

After being equipped with all business loan-related factors, it will be easy to analyze your requirements and apply for a business loan accordingly. So let your business soar to great heights with business loans from IIFL Finance, a reputed lending institute known for its smooth processing, quick disbursal and transparency in related costs. You can take the offline or online approach for application and fulfill your business requirements easily.