Factors that Determine The EMI of A Small Business Loan


Business loans are the most sought-after financial product that helps organisations manage their financial requirements, be it urgent or pre-planned.According to a recent report, the total lending to various businesses in India stood at Rs.64.45 lakh crore in January 2020. In this, the MSME sector holds credit exposure to the tune of around Rs.18 lakh crore.

Thanks to facilities like easy EMI options, repaying such credit is not an issue anymore. Borrowers can use a business loan EMI calculator to find out the instalments and plan accordingly to strengthen the financial stance of their organisation effectively. However, since EMIs are an integral part of any credit, one must know the factors that can affect the same.

Top 3 factors that affect EMI of a business loan
business loan EMI depends on multiple elements; here are some of the prominent ones that a business owner must keep in mind while applying for an advance.

    1. Interest rate
The interest rate plays a significant role in deciding the EMIs of any loan, irrespective of its purpose. A change in interest rate can have a considerable effect on the EMI repayments. If you are opting for a floating rate of interest, it can increase or decrease with each revision.

On the other hand, a fixed rate of interest will offer more stability, but in the long run, you may end-up paying extra. Additionally, the business loan interest rate depends on various factors, and you can manage those elements to avail a competitive rate of interest.

    2. Loan tenure
Changes in the business loan repayment tenure can also affect its EMIs. EMIs are equally divided throughout the tenure, and it is structured in that way to help customers repay with ease. In case you are opting for a longer tenure for repayment, you will pay smaller EMIs, and vice versa.

Therefore, any alterations to it will affect your monthly instalments. You can use a business loan EMI calculator to figure out the monthly payment in advance and then plan accordingly.

    3. Part pre-payment
Part pre-payment can also affect the EMIs of a business loan. Once you start making pre-payments, it will lower the principal amount, which will subsequently affect other factors associated with a particular credit. Hence, it will reduce the EMIs.

Apart from these three significant factors, here are some additional ones that can affect the EMI of a business loan.

    • The creditworthiness of a business
Even though it is not directly linked with the EMI, the creditworthiness of a business allows owners to negotiate a better deal with the lender. As a result, the EMIs become affordable.

    • Business plans
A well laid-out and progressive business plan help lenders to access the future growth of a business. Owners who manage to present such proposals can improve their odds of procuring a business loan, and enjoy more affordable EMIs.

Also, the financial statements submitted by an applicant help lenders to evaluate the repayment capacity, and based on that they can offer better terms on a business loan. In case of any discrepancies with such vital documents, borrowers may miss out on those facilities, and subsequently more affordable EMIs.

Even though these factors are not directly linked with the EMIs, they control a few aspects of a loan that decides the monthly instalments. For instance, if the interest rate on loan is high due to a low credit rating, then the EMIs will be on the higher side as well. Lenders like Bajaj Finserv, on the other hand, do not have such stringent regulations. Businesses can quickly avail credit of up to Rs.20 lakh by fulfilling the easy eligibility criteria.

Furthermore, the pre-approved offers provided by the company further streamline the application process and make it time-saving. This offer is applicable to financial products like business loans, personal loans, etc. Borrowers can quickly check their pre-approved offers by submitting their essential contact details.

Business loans help companies to tackle any planned or unplanned financial requirements with ease. With its easy terms and affordable EMIs, individuals can support their businesses financially and become a successful small business owner.