How interest is calculated on a business loan

As a business owner, loans are indispensable because they allow you to ramp up production to keep pace with demand without adding any financial strain. You can also use the funds to advertise your business, build a website and do other promotional or marketing activities.

However, you must be able to execute these plans at an affordable cost. This is why it is important to know how much you're paying as interest when you take a business loan. There are two ways in which you can compute this. Read on to understand both.

Additional read: Reasons why business loans are financially beneficial

Option 1: Manual calculation

Use the following formula to calculate the interest due on your business loan yourself.

E= P * r * (1+r) ^ n / ((1+r)^n-1 )

Where,

E= EMI
r= rate of interest, expressed as r/12*100
n= Tenor of the loan (in months)
P= Loan sanctioned

Use the value of E to calculate the total interest using the second formula.

T = (E*n) - P

Where,

T= Total interest
E= EMI
n= Tenor of the loan (in months)
P= Loan sanction

The value for 'T' is the total interest payable towards your business loan. This calculation is complicated and can be time-consuming. Therefore, using a business loan rates calculator is recommended.

Option 2: Using a business loan EMI calculator

Most lenders offer an EMI or business loan rates calculator to compute your EMI in under a minute. It is a free online tool, and since the calculation is computerised, the results are always accurate. It is available on most lenders' websites, and you only have to enter the principal amount and tenor, and the calculator will apply the interest rate. It will show you the EMI, total amount due and total interest payable.

Use any of these two methods to know the interest payable towards your loan. The manual method has room for error, while an EMI calculator offers accuracy and speed. You can use it to compare lenders and select the best business loan offer. This is important as it affects your cost-benefit analysis.

You'll find that the Bajaj Finserv Business Loan is a highly beneficial option as it offers a high-value sanction of up to Rs. 80 lakh at a competitive interest rate. You also benefit from the Flexi loan facility that allows you to borrow as you need from the sanction and pay interest only on the amount you utilise.

This loan is easy to obtain and requires minimal documentation, making it a useful resource when you are pressed for time. You can get approval in under 24 hours and use the funds to meet big and small business expenses. Check your tailored pre-approved offer and apply to expedite the loan acquisition process.