Business Loan Interest Rate

The smooth running of any business depends on proper and timely funding because unobstructed cash flow or credit flow is necessary for investment purposes as well as for working capital. You might fall short of funds at some time, at other times you might prefer to take a business loan while keeping your cash handy. Whatever the reason or requirement, loan for business from financial institutions and other banks are essential to optimise both short term and long-term growth.

Why business loan?

Business loans are a preferred form of raising funds for businesses among other avenues such as promoter’s funds, venture capitalists, angel investors, public funding, etc. This preference is mainly due to the following reasons:

• Options for a shorter or customized tenure of loans

• Unlike equity, there is no need to give up or sell stakes

• Interests paid on business loans are tax-deductible

• Advance calculation and knowledge of interest to be paid in EMIs help in financial planning

• Business loans work better for micro and small scale businesses

However, one of the major and sometimes the sole deciding factor for applying for business loan is the interest rate. At present, the competition among various banks, NBFCs, and government schemes have kept the business loans interest rate at attractive percentages which usually ranges from 15% to 24%. And better knowledge and proper research can help you to opt for a business loan that fulfils your funding requirements with in your budget

Types of business loan interest rates

There are two types of business loans interest rates in India. They are:

• Reducing Rate: Here, the interest rate is adjusted per month based on the outstanding loan amount. Therefore, it is known as Diminishing or reducing rate of interest.

• Flat Rate: Here, the interest rate is calculated on the entire loan amount, and the tenure of the business loan is also taken into account. The EMI does not diminish with the principal amount being paid every month, and thus, the business loans interest rate is flat.

The business loan type that suits you will differ according to your amount requirement, tenure involved, and of course, the interest rates payable.

Internal Factors Affecting Business Loans Interest Rates

Several internal factors affect the business loans interest rate paid by you and this could differ even with the same lender and the same types of loans availed.

• Credit History:Credit score has emerged as a critical factor in securing loans at reasonable interest rates. Your credit record verifies that you are not a defaulter, pay your EMIs and credit card bills on time. All banks and financial institutions review credit scores before approving loans. The better your credit score, the better business loans interest rates you qualify for.

• Company Tenure: Established businesses have a proven track record of handling credit. Unlike new businesses, they provide the lender with a sense of security, which translates into lower interest rates.

• Business Type:Certain businesses are considered to have a higher risk factor. In such cases, notwithstanding the amount of business experience you have accumulated, the nature of your business leads to higher interest rates.

• Monthly Revenue:Profitable or decent monthly turnovers assure lenders that repayment defaults are unlikely. Healthy business financials mean consistency in revenues and hence, a significantly comfortable loan amount and repayment terms.

• Collateral:Business loans procured against sufficient collaterals reduce the risk for lenders and therefore, lower the interest rates on loan too. In the same vein, unsecured loans run into a higher rate of interests.

• Lender Type:It is equally important to do market research and study of the loan provider, especially, their interest rate methods, other charges, processing fees, EMI policy, etc. Business loan interest rates differ from one institution to another vastly.

External Factors That Affect Business Loan Interest Rates

Factors that are not always within the control of the business can also impact the ongoing business loan rates. These generally pertain to the health of the country’s economy. Below are external factors affecting business loan interest rates

Monetary policies as decided by central banking authorities based on currency circulation, liquidity, etc.

Rate of inflation in the economy drive interest rates higher.

Global economic events have a domino effect that also bears on interest rates as the financial players of the economy, both organized and unorganized are interconnected.

If business operators keep close monitoring of the above factors, it is plausible that highly competitive and attractive business loan interest rates can be secured. With a performance-oriented business plan that focuses on growth quarter by quarter, businesses can secure excellent rates. Remember, to keep all documentation and records in order and opt for a suitable tenure linked with good interest rates and you can get a business loan at a lower interest rate.

Customized Business Loans

Certain financial institutes like Indifi, facilitate special loan schemes with attractive business loan interest rate for a particular business purpose or types of business requirements.These quick business loan include extension loan, equipment loan, investment loan and so on with special discounted rates and benefits. Keep in mind these factors when applying and get instant business loan interest rates. You can also contact us for more information or assistance.

FAQs Related to Business Loan Interest Rate

Businesses in India are always on the hunt for getting loans from banks and NBFCs, since the requirement for cash is ever-present. One of the key things in any corporate loan is the interest rate. Let’s look at some of the FAQs based on this aspect:

How does a lender compute the interest on a corporate loan?

The interest amount is computed using interest rate, loan amount, tenure in the following formula, E= P * r * (1+r)^n / ((1+r)^n-1). Here, P stands for the loan amount, n for the tenure, r for the interest rate on the loan, and E is the monthly instalment (EMI) amount.

Is there any application processing fee or late payment charges in a business loan?

Yes, there is a processing fee of 2-5% depending on the lender, some lenders charge 2%, and some even charge 5% of the principal loan amount. Likewise, the late payment charges and penalties are levied, which also varies from one lender to another.

What is the range of tenure of a usual business loan?

Usually, the minimum tenure for a business loan is somewhere between 12 to 18 months, and the maximum tenure falls between 84 to 90 months. However, this might also vary from one bank to another.

How to decide on a tenure that is ideal for any business?

There are some factors that need to be analysed before choosing a tenure, these factors are the loan amount, rate of interest, financial plans, and monthly liabilities. If the loan amount is small, one should ideally go for a shorter tenure to reduce the interest liability. Likewise, if the interest rate is less, then prefer a short tenure loan to pay a lesser amount in the loan. If your financial planning has some big purchases in the near future, then take a short tenure loan and repay it as soon as possible. You should opt for a longer tenure only when your monthly expenditure is higher.

What are the pre-closure and foreclosure charges in a business loan?

Though it is subjective, and varies from one lender to another, usually the foreclosure charges are 4% on the outstanding loan amount. There is a charge for partial prepayment as well, which is 2-3% on the amount being deposited as a partial prepayment.

What are usually the interest rates for a business loan in India?

The interest rate is decided based on the loan amount and the borrower’s credit history. If a corporate borrower has a substandard credit rating, then the interest rate being charged is significantly higher. However, it ranges between 10 to 20% at an average, and even higher in a few cases.

HOW DO I APPLY FOR A LOAN?

Applying is quick and easy and typically takes less than 10 minutes. We ask for basic information about you and your business. Securely connect your bank information so we can assess your business without long forms, waiting in line or having to dig up old paperwork. Your association with business services who we have partnered with helps get you more fitting loans.

WHAT DOCUMENTS ARE REQUIRED TO AVAIL A LOAN?

We need your

1. Pan Card
2. Aadhaar Card
3. Address proof of self and firm
4. Business registration proof
5. Bank Statement last 6 months.
   In case of loan more than 15 lacs, latest ITR