Factors Affecting Business Loan EMI

Let’s understand in details the factors affecting business loan EMI:

Business Loan Amount

Loan amount directly impacts the EMI. The more you borrow, the more you pay as EMI. Hence, it is of utmost importance that businesses borrow only the amount that is needed to prevent financial strain. Over-borrowing inflates fixed obligations, while under-borrowing may lead to unmet demands.

Let’s understand the impact of loan amount with a help of an example

Assumptions:

• Interest Rate: 12% p.a.
• Tenure: 5 years (60 months)

In the above table, the interest rate and the tenure remain the same with varying loan amounts.

Business Loan Interest Rate

The higher the interest rate, the more the EMI. Multiple factors drive the interest rate levied on your loan, including:

• Credit profile of the borrower: The credit profile of the borrower is used by lenders to assess the creditworthiness and repayment capacity of the borrower. The more the risk involved in lending, the more will be the interest rate.
• Business stability: Stability shows that there’s less fluctuation in revenue, thus decreasing the probability of default. A stable business will attract a lower interest rate, as compared to a business with fluctuating incomes.
• Existing Liabilities: If the existing obligations of a business are already high, the risk for lenders increases. To cover up for this risk, the lenders charge higher interest rates.

Let’s understand the impact of interest rate of business loan with the help of an example

Assumptions:

• Loan Amount: Rs. 10,00,000
• Tenure: 5 years (60 months)

In the above table, the loan amount and the tenure remain the same with varying interest rates.

Business Loan Tenure

Longer tenure reduces the EMI, but increases the total interest outgo and vice versa. Borrowers should choose a tenure as per their repayment capacity.

Let’s understand the impact of tenure on the business loan EMI with the help of an example

Assumptions:

• Loan Amount: Rs. 10,00,000
• Interest Rate: 12% p.a.

In the above table, the interest rate and the loan amount remain the same with varying tenures.