Most entrepreneurs avail of loans to raise the capital they need to set up a business. Besides this, they may also take out loans as required or when their startups or products take off for sustenance.
However, you should be more cautious as a first-time borrower and learn more about the lender, and other details, such as your eligibility to get a business loan and the interest rates.
You can get more information about the lender and the different loan products by visiting the official websites. The interest rates play a prominent role in deciding the EMI, and you can use dedicated online business loans or loan EMI calculator to estimate them.
Many such popular tools are available online on reputed lender websites. However, using an online business loan EMI calculator requires some knowledge of business loans, such as how banks or other lenders set interest rates and EMIs, and the factors that influence them.
Interest in Business Loans
The interest on business loans mostly compounds over the tenure and is a major deciding factor in setting the EMIs. You can use the following formula to determine the interest rate and the EMI.
E = P*r*(1+r) ^n/[(1+r) ^n-1].
In the above equation:
- ‘E’ is the EMI
- ‘P’ is the Principal Amount or the sum of money borrowed.
- ‘R’ is the rate of interest.
- ‘N’ is the loan tenure or the time required for repayment.
So, according to the above formula, the EMI payable depends on the principal, the sum of money borrowed, the rate of interest, and the time you will need to repay the loan.
Benefits of Availing Business Loans
Entrepreneurs and other such business owners may avail of loans for different purposes. However, three common reasons may include:
- Gathering the funds required to set up the business.
- Ensuring smooth and seamless daily operations.
- Setting up new office spaces for expansion, which may require land or property acquisition.
As a business owner or entrepreneur, you can take out secured or unsecured loans, depending on your eligibility. However, lenders may ask for collateral when sanctioning secured loans.
As for unsecured loans, they come with higher interest rates as compared to secured loans and don’t need any collateral.
Business Loans and EMI Calculators – Myth vs. Fact
All businesses, regardless of their sizes, need funding to start with and for their smooth and efficient daily operations. There are many ways to fuel your business. However, relying on dedicated financing options, such as taking out business loans from reputed lenders, can help fulfill your organization’s demanding and diversified needs.
Still, there has been much speculation over business loans. Although many entrepreneurs, and other such business owners, may brush them aside as myths, quite a few of these are still prevalent, even today.
So, let’s look at what business owners who take out loans that help them establish, and run different ventures, successfully think of them.
1. You Need the Perfect Credit Score
CIBIL is an agency tasked with determining a person’s creditworthiness by assigning them a credit score. The agency determines your creditworthiness by giving you a score on a scale ranging from 300 to 900. So, having a credit score of at least 300 would mean that you may be eligible to take out a loan.
Several factors play a prominent role in determining your credit score, including how timely you are in repaying your loans.
While you should have a good credit score between 300, and 900, as most lenders may decide on whether to give you a loan or not, depending on your creditworthiness, it still doesn’t always need to be at the higher extremity, and most lenders will also do with around 700, or so.
2. Banks are the Best Lenders
Almost all lenders have similar rules as far as business loans are concerned. So, banks may not be your best option here, as many NBFCs, and other private lenders offer fast and flexible approvals and even charge lower interest rates. Moreover, there are no additional costs or prepayment charges, as with most banks.
3. Higher the Interest Rates, Higher the EMIs
Associating interest rates with EMIs may sound logical for most business owners. While this may also be true to a considerable extent, it’s not always how it works.
4. Most Lenders Have Stringent Approval Processes
Most business owners and entrepreneurs think banks and other popular lenders have stringent approval processes and won’t get their loans approved in time – at least not before their startups or products launch.
However, this comes as a contradiction, as loan applications and processing have become much faster and easier over the years, as most of it happens online. Moreover, business loan applications, approvals, and their subsequent disbursals, also involve minimal or no paperwork, making applying for and getting them less cumbersome.
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So, getting a business loan isn’t complicated. Contrary to many popular beliefs that most business owners and entrepreneurs have, you don’t always need high credit scores or go through a rigorous application or approval process to get your loans approved. Also, banks are not the only lenders you can turn to for business loans. Various vital other non-banking financial institutions and private lenders also give them out at competitive interest rates.