A business loan gives you the money you need to launch, grow, or run your company. These loans are offered by banks and NBFCs at varying interest rates, which affect the overall amount owed. A reduced interest rate makes the loan more affordable by lowering borrowing costs. Finding a cost-effective solution that meets the financial requirements of the company is made easier by comparing business loan interest rates.
Factors That Affect Business Loan Interest Rates
Business loan interest rates vary based on multiple factors that lenders consider before approving a loan. Here are the key factors that influence the interest rate:
Loan Amount
Since lenders use the loan amount to determine risk, the loan size has an impact on the interest rate. While smaller loans often have higher rates because of increased risk, larger loan amounts may have lower rates for well-established enterprises.
Loan Tenure
The term “loan tenure” describes how long a loan is taken out. Longer tenures may have lower interest rates, but the total amount of interest paid will be larger. Shorter tenures typically have higher interest rates because lenders recover their money more quickly.
Type of Business Loan
Both secured and unsecured business loans are offered by lenders. Interest rates are often lower for secured loans that are backed by assets like real estate or machinery. On the other hand, because lenders are taking on more risk, unsecured loans—which don’t require collateral—have higher interest rates.
Credit Score and Financial Health
The interest rate is largely determined by the borrower’s credit score and financial history. While a low credit score may result in higher rates or loan refusal, a good credit score (750 and above) may result in reduced rates. Before setting the rate, lenders also look at the turnover and profit of the company.
Nature and Age of Business
Since they lack a track record of sound financial management, start-ups and new companies may be subject to higher interest rates. Well-established companies with a steady flow of income and a track record of success are viewed as lesser risk and might receive better rates.
Market Conditions and RBI Policies
The Reserve Bank of India’s (RBI) monetary policy and the state of the economy both affect interest rates. Lending rates grow in tandem with RBI repo rate increases, increasing the cost of corporate borrowing. On the other hand, lower repo rates could result in lower interest rates.
Lender’s Internal Policies
Every lender evaluates loan applications differently. While some might demand higher rates as a result of their risk assessment policies, others might provide attractive rates to entice borrowers. Finding the best price requires comparing rates from several lenders.
How to Compare Business Loan Interest Rates
Selecting a loan that meets the demands of the business and is less expensive is made easier by comparing interest rates. To compare interest rates on business loans, take the following actions:
Check Interest Rate Type
Business loans come with two types of interest rates:
- Fixed Interest Rate – The rate remains the same throughout the loan tenure
- Floating Interest Rate – The rate changes based on market conditions
A fixed rate is predictable, while a floating rate may be lower at times but also come with risks of increase.
Compare Interest Rates from Multiple Lenders
Interest rates offered by various banks and NBFCs vary. A table comparing the interest rates on business loans offered by several Indian financial institutions can be seen below:
Check Processing Fees and Other Charges
Apart from interest rates, lenders may charge:
- Processing Fees – A one-time fee for processing the loan application
- Prepayment Charges – A fee for repaying the loan before the tenure ends
- Late Payment Penalties – A charge for missing EMI payments
These extra costs could increase the total loan expense
Compare EMI Amounts
Borrowers can estimate the monthly payments based on the loan amount, interest rate, and tenure by using an EMI calculator. Selecting a reasonable EMI promotes improved money management.
Look for Special Offers
Some lenders offer lower interest rates to women entrepreneurs, new businesses, or MSMEs. Checking for such offers may help in reducing loan costs.
How to Apply for a Business Loan
To apply for a business loan, follow these quick and easy steps to ensure quick approval:
- Check the lender’s eligibility criteria based on business age, turnover, and credit score
- Decide the loan amount and tenure based on business needs and repayment capacity
- Gather necessary documents like identity proof, business registration, bank statements, and income proof
- Fill out the loan application form online or at the lender’s branch
- Submit the completed application along with the required documents for verification
- Wait for the lender to review, approve, or reject the loan application
- Upon approval, review the loan terms, sign the agreement, and receive the loan amount in your account
Conclusion
Selecting a loan that is both reasonable and appropriate for the company is made easier by comparing interest rates on business loans. Better financial planning is ensured by assessing interest rates, fees, and loan terms. Prior to applying, determining eligibility and repayment capacity reduces financial strain and increases the likelihood that a loan will be approved. Various rates are offered by lenders according on market conditions, credit score, and business stability. A well-thought-out choice might result in less borrowing rates and easier loan repayment, which would be advantageous for long-term company expansion.