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. It is essential to understand that several aspects need to be put together to run a business. These aspects, such as hiring new talent, purchasing equipment, renting or buying an office space, etc., come with costs. Business loans can help meet these needs and cover the required expenses.
All Factors of a Business Loan
When it comes to a business loan, there are three 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 money of the business loan would vary. This total amount 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. Your interest rate will be determined based on the lending institution you pick. 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 when 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 wealth may require more tenor than lower money.
How to Calculate a Loan Payment
It is essential to plan your finances to repay your business loan on time successfully. It can be an excellent start to understanding how your loan payment is calculated. Interest-only loans are calculated differently compared to amortizing loans. This can help you 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 the loan you have borrowed with the interest rate offered by the bank. To find out your monthly payment, you must 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 benefit your business, it is essential to repay your loan on time. 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. You can also use a business loan calculator to calculate how much you must repay.
