How is the repayment schedule determined for business loans in India?

Repayment schedules for business loans in India may be customised based on a number of factors including loan amount, tenure, interest, and repayment capacity of the borrower. Lenders are interested in providing a repayment schedule that permits borrowers to repay the loan and/or interest on the loan while reducing the risk of default.

Most business loans are repaid using EMIs that represent both interest and principal repayments. EMIs should be based on the loan amount, interest rate and repayment period.

A number of factors can impact repayment schedules:

• Business size and type.
• Purpose of the loan (working capital, growth, capital equipment purchase).
• Expectations regarding cash flows and seasonal peaks.
• Borrower's credit profile and history.

Lenders may also offer a temporary pause on repayments for new businesses or another phase of a project for up to a specified period of time. When borrowing money, it makes sense to read the repayment schedule and ensure it matches your expected cash flow.

The repayment schedule will identify exactly what your EMIs will be, the frequency of the repayments, and total loan tenure, which will provide reasonable guidance for your budget in the future. More specifically, the repayment schedule will indicate that with each repayment the next EMI will have a lower interest component and higher principal repayment, and thereby avoid the difficulty of tracking your outstanding balance. In addition, some non-bank lenders may also have features that allow for interest only repayments and/or repayment holidays for businesses that are cash strapped for a limited period of time or have a seasonal business.