Getting the most out of your Amortization Plan
While a business loan appears as a window of opportunity to those looking to expand their enterprise, it is also important to consider what comes after receiving your funds. In a typical lender and borrower relationship, the borrower will arrange to make payments to the lender either annually, bi-annually, or monthly. This process of making equal payments over a certain period of time is called amortization.
An appropriate amortization plan for a business loan includes two major elements: the principal amount and the amount of interest. You must ensure regular repayments to reduce the principal amount, as well as pay off the yearly interest incurred on the loan. The combination of both these amounts is referred to as Equated Monthly Instalment – ‘EMI’.
What is Involved in Amortization?
There are a few points to consider before you begin to create an amortization schedule to help plan your payments. One thing is the business loan amortization period. Simply put, this the amount of time that is provided to you to repay your loan. Ideally, the lesser the amortization period, the more beneficial it is for you since the interest accumulated would be less.
The next thing you should know is the business loan costs amortization, which includes the principal amount of the loan, as well as the amount of yearly interest incurred. Generally, this involves a fixed principal payment, which is paid off based on the payment schedule decided. Only the business loan interest rate changes with time according to the loan agreement decided between the parties and the market conditions.
Calculating Your EMI
Once you are aware of the determining factors in an amortization schedule, you’ll need to understand how to calculate your EMI. While this might seem like a daunting task, Bajaj Finserv makes things simple with an online Business Loan EMI Calculator
You need to provide three simple details to calculate your customized EMI. These include the total loan amount, the amount of tenure, or payment period, in months, and the rate of interest. It plugs these items into a business loan amortization formula, resulting in your EMI.
Creating an Amortization Schedule
While calculating your EMI is extremely important, it is also crucial to create a schedule that shows both your fixed principal payment, as well as the differing interest rate so that you can fully understand what you are paying each year. This information is best organized in a business loan amortization table.
This table should ideally have the following 6 columns:
- The year that the loan is still outstanding
- The balance at the beginning of the year
- The total EMI
- The interest paid
- The principal paid
- The balance at the end of the year
Once this table has been filled according to your personal statistics, you can use it as an amortization schedule for your business loan.
If you find creating a payment plan to be an overwhelming feat, don’t worry. Bajaj Finserv offers Business Loans that can be applied for, approved, and paid right from your personal computer.
Bajaj Finserv provides you the tools that you need to make calculations, determine your payments, and complete them without even having to leave the comfort of your own home. Click here to apply online.