?? Corporate Tax Shield Benefits:
Interest paid on business loans is tax-deductible as a business expense.
Worked Example: Business Financing Costs
Suppose your startup takes a business expansion loan of ₹10,00,000 at a fixed interest rate of 12% p.a. for a tenure of 3 years:
- Principal (P) = ₹10,00,000
- Monthly Interest rate (r) = 12% / 12 / 100 = 0.01
- Loan tenure in months (n) = 3 × 12 = 36 months
- Calculate EMI = [10,00,000 × 0.01 × (1.01)^36] / [(1.01)^36 - 1] = ₹33,214/month
- Total repayment = ₹33,214 × 36 = ₹11,95,717
Your monthly EMI will be ₹33,214, with a total interest cost of ₹1,95,717 over 3 years.
Business Loan EMI Computation Formula
The standard mathematical formula utilized to calculate the loan repayment installment (EMI) is:
Where:
- P = Principal borrowed loan amount
- r = Monthly rate of interest (Annual interest rate / 12 / 100)
- n = Repayment tenure in number of months (Years × 12)
Complete Loan Amortization Schedule
| Month | Opening Balance | EMI Repayment | Extra Prepayment | Principal Paid | Interest Paid | Closing Balance |
|---|
Frequently Asked Questions
It provides clear insights into commercial borrowing, helping you align monthly capital outflows with operational cash flows. It also ensures you don't over-leverage your balance sheet.
Yes, many financial institutions support full or partial prepayments. Making regular minor prepayments dramatically lowers your total compounding interest burden over time.