How To Calculate The EMI On Your Business Loan

A business loan can prove useful for budding entrepreneurs & small businesses. Calculate your business loan emi easy with this guide by IIFL Finance Now!

10 Jun,2022 12:41 IST 23 views
How To Calculate The EMI On Your Business Loan

For entrepreneurs, getting loans to power their business is a constant requirement. While micro entrepreneurs have small loan requirements and they can opt for products like a gold loan and even a personal loan to run their business, banks and large financial companies also offer tailored business loans for small entrepreneurs.
These loans have a tenor of up to five years to help business owners not just use the money to create a critical project or expansion move but also generate enough output or returns by the time they have to repay the full amount.

Small Business Loans

Some NBFCs offer two types of products: one with a business loan of up to Rs 10 lakh and the other that can go up to Rs 30-50 lakh. Compared to banks, NBFCs can offer more flexible terms and a much smoother process of availing a small business loan. Typically, such small loans don’t require the borrower to put up any collateral. Lenders usually sanction such loans after reviewing the turnover, cash flow or balance sheet of a business.
These swift business loans are ideal for micro, small and medium entrepreneurs (MSMEs) with small financial requirements. From application to disbursement, the process is fully online, so one does not need to visit any branch either. The interest rates start as low as 12.75% and borrowers can repay as per their invoicing cycle.

How Much EMI Would One Have To Pay?

Equated monthly instalments (EMIs) are a key consideration for a borrower as they meet it out of the cash flow from the existing business operations every month.
One can calculate the actual EMIs based on different scenarios of a business loan, such as, a ticket size of Rs 10 lakh and Rs 30 lakh. The actual EMI would also depend on the loan tenure one opts for. A shorter tenor typically attracts a higher interest rate and longer period has a lower interest rate.

Rs 10 Lakh Loan: Two-Year And Five-Year

If one avails a Rs 10 lakh loan for a five-year-period, at the lower range of the business loan interest rate that prominent NBFCs charge, a borrower would be shelling out Rs 22,625 each month. Over the duration of the loan period the total interest outgo would be Rs 3.57 lakh.
Now, if we take the same loan amount and project it over a two-year loan tenor with a rate of interest in the 16% level, the EMI shoots up to Rs 48,963. The total interest outgo over the entire duration of the loan period would be Rs 1.75 lakh.

Rs 30 Lakh Loan: Two-Year And Five-Year

If we use the same scenario with a higher Rs 30 lakh business loan, the EMI for the five-year loan, at the lower range of the business loan interest rate, it would work out to be Rs 67,876 each month. Over the duration of the loan period the total interest outgo would be Rs 10.72 lakh.
If we take the same loan amount and project it over a two-year loan tenor with a rate of interest at the 16% level, the EMI would become Rs 1.46 lakh. Over the duration of the loan period the total interest outgo would be Rs 5.25 lakh.
We also present this in this quick to gauge table:

 

LOAN AMOUNT- Rs 10 lakh

 

 

LOAN AMOUNT- Rs 30 lakh

Tenure (Year)

1

2

5

 

Tenure (Year)

1

2

5

Interest Rate

20%

16%

12.75%

 

Interest Rate

20%

16%

12.75%

EMI (Rs)

92,635

48,963

22,625

 

EMI (Rs)

2,77,904

1,46,889

67,876

Total Interest Outgo (Rs)

1,11,614

1,75,115

3,57,518

 

Total Interest Outgo (Rs)

3,34,842

5,25,344

10,72,554

Conclusion

The actual EMI outgo for a business loan depends on the loan amount and the loan tenure. Prominent NBFCs like IIFL Finance have an easy-to-use calculator on their website to help borrowers find how much they would need to pay each month. 
IIFL Finance, too, offers small business loans of up to Rs 10 lakh and Rs 30 lakh without any collateral. The process for taking on the two loans is similar; the only additional requirement for a Rs 30 lakh loan is the GST registration.
These small loans are essentially unsecured loans as they don’t require any collateral. However, IIFL Finance also offers secured business loans to MSMEs of up to Rs 10 crore if the business owner or entrepreneur can pledge a residential or commercial property, or even a piece of land, as security.

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