EMI Calculators and Business Loans – Facts and Myths

Introduction:

Business loans are a popular funding source for entrepreneurs who want to start or expand their businesses. However, applying for a business loan can be daunting if you are unsure how much you can afford to borrow and repay. That is where term loan EMI calculators come in handy. EMI calculators are online tools that help you estimate the monthly installments you need for your business loan. 

However, countless myths come up when it comes to applying for this loan product or using the calculator. This article will dispel misconceptions about this tool and business loan product. 

Myth 1: Business loans are hard to get

Fact: Getting an MSME loan is easier than you may think. Many lenders offer these loans to businesses of all sizes and sectors. You need to meet their eligibility criteria, which may vary depending on the type and amount of loan you want. Some of the factors that lenders consider are your business plan, cash flow, credit score, collateral, and industry. Submit your small business loan application online, and can get instant approval.

Myth 2: A perfect credit score is necessary to get this loan

Fact: Having a good credit score helps in securing better loan terms. However, you can get loans with lower scores if the reason for average creditworthiness is not debt default. Lenders might approve if you prove your repayment potential and your business is promising. To improve your score: pay off debts, fix credit report mistakes, and limit business credit card usage.

Myth 3: These loans are expensive and have high-interest rates

Fact: The business loan interest rate depends on the loan amount, tenure, type, lender, credit score, and market conditions. You must compare business financing offers from multiple lenders and choose the one that gives you the best deal. Also, you may get lower interest rates with an established and profitable business. Moreover, you can save on interest by making prepayments or part payments whenever possible.

Myth 4: You can use a business loan for any purpose

Fact: While a business loan allows you to use the funds for various business-related expenses, you cannot use it for personal or non-business purposes. Moreover, certain products serve specific aims. For example, you can use a machinery loan to enhance your company’s technology and facilities. If you misuse the loan funds, you may face legal consequences and damage your credit score. Therefore, use this loan responsibly and wisely.

Myth 5: No business finance for startups

Fact: This is partially true. Usually, lending institutions hesitate to lend to startups because they lack business experience and have no business credit track record. But this does not mean that there are no funding options for them. Startups can get funding assistance from private investors or apply for government schemes like Mudra Yojana or the Stand Up India Scheme.

Myth 6: EMI calculators are hard to use

Fact: Business loan calculators are simple and user-friendly tools that help you calculate your monthly repayments on your unsecured business loan. You need to enter the loan amount, interest rate, and tenure in the calculator, and it will instantly show you the EMI amount, total interest payable, and the total amount payable. You may modify the variables to see how they affect your monthly obligations. An EMI calculator can help you plan your budget and choose a loan that fits your affordability.

Myth 7: EMI calculators for business loans are not accurate

Fact: EMI calculators uses mathematical formulas to display result. They provide accurate output depending on the input you enter. However, the results are just an estimate. The EMI includes several other borrowing costs. These include processing fees, documentation charges, and collateral assessment fees (for secured loans).

Instances may arise where you delay your EMI. This incurs late costs that the calculator does not factor in. There could also be situations where you make a partial loan prepayment, resulting in a prepayment penalty. It is another fee that the business loan EMI calculator does not consider.

Always check with your lender for the exact EMI amount and other charges before finalising the loan.

Myth 8: EMI calculators are only for standard loans

Fact: You can use EMI calculators for different types of loans. This tool is available for term loans, overdrafts, lines of credit, invoice financing, etc. 

Each loan type has its features and benefits that suit different business needs. You can use an EMI calculator for business loans to compare the EMIs of different kinds of loans and choose the one that meets your requirements.

Myth 9: EMI calculators are only for fixed-interest rate loans

Fact: You can use this tool for fixed and floating interest-rate loans. The EMI remains identical over the repayment duration for fixed-interest rate loans. The EMI keeps changing with the market interest rate changes for floating interest rate loans. You can use an EMI calculator to compare interest burdens on both rates and choose your option accordingly. 

Myth 10: EMI Calculator helps determine eligibility

Fact: EMI calculators help determine your monthly debt obligations. Lenders provide specialised eligibility check tools for qualification. You must enter your annual income, business vintage, and a few other details to confirm business loan eligibility.

Conclusion

Dispelling the myths associated with business loans and their calculators is crucial. You might go for the wrong product without understanding various business loan products, utilities, and features. Similarly, lacking knowledge of the actual potential of the business loan interest calculator can result in failure to budget for your EMI or borrowing beyond your means.

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