With many businesses springing up in the current, many entrepreneurs have been looking for the required capital to help launch and expand their businesses. Business loans can help bootstrap your business and meet several operational costs, working capital costs, and others. To run a business, it is important to understand that several aspects need to be put together. These aspects such as hiring new talent, purchasing equipment, renting or buying an office space, etc., comes with a cost. Business loans can help meet these needs and cover the required costs.
All Factors of a Business Loan
When it comes to a business loan, there are 3 main parts that you should be aware of. This can help you repay your loan more effectively and plan your finances accordingly.
1. Principal
Depending on how much capital you need to support the functioning of your business. The capital of the business loan would vary. This total amount that you will borrow has to be paid back and interest to close the loan.
2. Rate of Interest
Different banks and lending institutions have different business loan interest rates. Based on the lending institution you pick, your interest rate will be determined. A lower business loan interest rate would be beneficial as it can help reduce the amount of EMI you have to pay and your overall repayment value.
3. Term of Loan
The term, also referred to as the tenor, is the time period during which you should repay your entire business loan. You can choose from a range of tenors to repay your loan in installments. One of the factors to consider when picking a tenor is the amount of capital you’ve borrowed. Depending on your repayment capacity, a higher capital may require more tenor compared to a lower capital.
How to Calculate a Loan Payment
It is important to plan your finances so that you can successfully repay your business loan on time. It can be a good start to understand how your loan payment is calculated. Interest-only loans are calculated in a different way compared to amortizing loans. This can help you to plan your finances to avoid credit dues on your loan.l
1. Interest-Only Loans
For interest-only loans, the total loan amount that you have to repay is calculated by multiplying the capital of loan that you have borrowed with the interest rate offered by the bank. To find out your monthly payment, you have to divide this product by 12.
Amount to be repaid monthly = Loan balance * (Annual interest rate/12)
2. Amortizing Loans
For amortizing loans, you first have to determine the discount factor.
Discount factor = [(1+r)n -1] / [r(1+r)n]
Once you determine this value, you can calculate the amount to be repaid using the formula below.
Amount to be repaid = Amount / Discount factor
In a Nutshell
Business loans can help meet several costs of running a business. While it can be beneficial to your business, it is important to repay your loan on time. You can also use a business loan calculator to calculate how much you have to repay. If you are looking to avail of a business loan, Finserv MARKETS can help you while providing benefits such as flexible repayment tenor, minimal documentation, and others.
