Commercial Loan Calculator

Business or Commercial loan has been one of the most common methods of borrowing money from external sources like banks and nonbanking financial companies to start a new business venture or expansion of an existing business.

To begin with, let us understand what a loan is?

 Loan can be referred to as the money lent to an individual, organization, or other domains by an individual, organization, or financial entity. The recipient of the investment is then liable to pay regular interest on the loan amount as well as repay the principal amount borrowed within a stipulated time frame, by way of EMIs. 

 What is an EMI?

An EMI (Equated Monthly Instalment) is a pre-decided fixed amount to be paid on a specific date each month by the borrower of a loan to clear off an outstanding loan within the set-out time frame. An EMI amount includes the interest plus the principal amount accrued on the loan amount.

Factors that affect Commercial loan EMIs:

• Principal borrowed – The actual loan amount you need to hire to start or expand a business. Higher the principal loan amount higher will be the EMI payable and vice-versa.

• Rate of interest – One of the prime factors affecting the EMI amount is the rate of interest. Higher the rate of interest, higher will be the EMI payable and vice-versa.

• Tenure of the loan – Longer the loan tenure, lower will be the EMI payable. Currently, the longest loan tenure for business loans in India is five years.

• Monthly rest period – Under the monthly rest period, the interest is worked out based on the outstanding loan amount, which means with every EMI that you pay, there is a reduction in interest over time. 

• Annual rest period – Under annual rest, even with the payment of regular EMIs, the interest calculated on the loan amount will be re-evaluated only at the end of each year (12 months).

Commercial loan EMI calculator

 Even though each EMI of your loan will be equal, the components of the EMI i.e., interest and principal amount will vary every month. During the initial days of loan repayment, the interest amount is higher, and the principal amount is lower, while gradually, the interest amount reduces as your total outstanding loan amount goes down and the primary component increases.Calculating EMIs manually can be a very time consuming and complicated process. This is where a Commercial loan EMI calculator comes in handy. A Commercial loan EMI calculator is an online tool that helps you calculate your loan equated monthly installments based on the details you provide. 

How does the Commercial loan EMI calculator work?

For calculation of EMIs using Commercial loan EMI calculator, you need to know the below details of the loan:

• The total loan amount
• Rate of interest charged on the amount
• The loan tenure

The mathematical formula for calculation of Commercial loan EMI is: E = P * R * (1+R)^N / ((1+R)^N-1), where;

• E is EMI (Equated Monthly Instalment)

• P is the principal loan amount borrowed

• R is the rate of interest

• N is the loan tenure in months

Step by Step method of calculating EMIs using Commercial loan EMI calculator:

1. Enter the loan amount for which you want to apply.
2. Enter the rate of interest applicable
3. Select the tenure of the loan as per your repayment convenience

After entering the above details, the commercial loan calculator evaluates the below figures:

• Total interest amount payable until the end of your loan tenure.
• The total amount owed at the end of the mandate, which is the sum of principal and interest.
• EMIs, which is the equated monthly amount to be paid towards your business loan.

EMI Calculator

The below table provides EMI calculation for a business loan amount of Rs 1lakh at an interest rate of 13.50% for different tenures:

• As discussed above, for the longest business loan tenure of 5 years at a 13.50% interest rate, the EMI amount is the lowest at Rs 2301, and the total interest payable comes to Rs. 94,227.
• And for the shortest loan tenure of 2 years at 13.50% interest, the EMI payable is the highest at Rs. 4,778, and the total interest payable is Rs. 30,414, less than half of what you pay for a five-year tenure.

Benefits of Commercial Loan Calculator

• Saves time – Calculating EMIs with commercial loan calculator saves time in tedious calculations as it calculates EMIs in seconds, only by entering necessary details of your loan.
• Accuracy – Manual calculations always carry the risk of errors, whereas calculating EMIs with commercial loan calculator provides accurate results.
• Financial planning – Calculating accurate EMIs can help you plan your finances based on your income and savings.
• Evaluate multiple schedules – With a commercial loan calculator. You can evaluate various amortization schedules for different combinations of loan tenures and rate of interest, thus helping you choose the EMI option that best suits your repayment potential.

Above all, a commercial loan calculator will help you make a well-informed decision about the monthly cash outflow towards your business loan repayment.