A business venture requires funds for daily operations, growth, expansion, diversification, and revenue generation.
The funding needs can although vary based on the size and scale of operations, activity undertaken like manufacturing or trading, purpose of financing, and more.
A term loan is thus a unique funding option specially designed for the customised financing needs of businesses. It comes with a pre-determined tenor and a repayment schedule.
As the growth of corporate loan segment picks up speed, term loans are becoming a preferred funding option for more and more businesses.
- Corporate loans in India grew by 8.2% in FY 2019, the highest growth recorded in the last 5 years.
Also, the demand for credit remains high in the business sector.
- Credit gap remaining to be addressed in the MSME sector solely stands at Rs.25.8 trillion.
It is thus essential that they use customised tools like term loan calculator to plan their finances.
While the calculator is essential for businesses, its utility is not limited to enterprises as other sectors like households, retail, etc. utilise a term loan as well.
However, as term loans are primarily used in the context of business finance, the reference for further explanations will be based on business term loans.
Term loan calculator and its importance
A term loan calculator is a financial tool that helps you estimate EMIs and select suitable a loan amount and tenor accordingly. You can thus plan the monthly outflows for repayment of the advance.
As a borrower needs to incur the expenses throughout the loan tenor, they must estimate the amount beforehand. Therefore, they must know how to use a business loan EMI calculator.
The utilisation of this calculator comes with the following benefits –
- Identification of repayment feasibility
A closely accurate estimation of EMIs based on the loan amount, tenor, and interest rate allows a business to examine whether the repayments would be feasible for it over time.
It can thus allocate necessary funds monthly to meet its fixed financial obligation towards the repayment of term loan.
- The decision for an appropriate loan amount
EMIs computed as per the loan amount and tenor provided allow a prospective borrower to gauge the fixed obligations.
In case the monthly instalments are not suitable or the borrower has a higher repayment capacity, the loan amount can be adjusted accordingly.
As an increase or decrease in the loan amount is directly related to the instalment amount, you can decrease it to bring down the EMIs. Conversely, you can enter an increased loan value and arrive at the EMIs as per your repayment capacity.
However, it is also essential that businesses keep the borrowings close to the required financing as exceeding this can affect liquidity.
- Choice of a suitable tenor for loan repayment
Also known as a business loan calculator, the tool allows an individual to select a suitable tenor for loan repayment as well.
Similar to loan amount adjustment, you can also make tenor adjustments to arrive at a suitable monthly instalment.
However, loan tenor is inversely related to the EMI amount. You can thus opt for a longer tenor to bring down the EMIs. Likewise, a reduction in loan tenor would increase the instalment amount.
You can make this adjustment to arrive at just the right tenor that makes repayment both affordable and convenient.
- Budgetary decisions and management of funds
A suitable loan amount, as well as the repayment tenor, arrived at with a term loan calculator’s help also allows companies to take budgetary decisions aligned with business goals. A business can proceed to make long or short term financing plans depending on the loan’s tenor.
It also inculcates a discipline of fund management among businesses as they need to meet their fixed monthly obligation within the due date. Borrowing enterprises can thus go for fund allocation to fulfil their EMI liability.
You can access a loan calculator to proceed with EMI estimation for your term loan. Lenders like Bajaj Finserv provide customised tools like a business loan calculator for EMI calculation and to help borrowers decide on a suitable loan amount and tenor.
As for term loan calculators, make sure to use the tool before proceeding with your loan application to apply for a loan amount that remains feasible. Also, meet the necessary eligibility criteria and keep the necessary documents handy to improve your chances of loan approval.