Raising funds for your business is an ongoing process. Even after the initial expenditure of setting up a business is met, it requires money for smooth operations. However, the availability of funds at all times may be difficult. On some days, you may need a huge amount, while on the other days it might be different. Hence, to balance out your financial requirement, various banks and financial companies provide business loans. These loans help you to ease out both your financial worries and requirement for funds.
Due to high competition among various banks and NBFCs (Non-banking Financial Companies), these loans are available at highly competitive interest rates to attract customers. You can research well and opt for the lender that caters to your financial requirements. Usually, the lender also charges a nominal amount known as processing fee subject to the loan amount.
Interest rates on Business Loan can broadly range between 15% and 24% per year. However, other factors too influence the final rate of interest decided by the lender. For instance, your profile, credit score, business stability and profit, other financial aspects, industry outlook and risk assessment parameters. Once your interest rate is decided, you can calculate your monthly installment with the help of a Business Loan EMI calculator.
Business Loan Interest Rates – April 2019
If you are looking to opt for a Business Loan, Here are some details of some of the top Banks and NBFC’s as of March:
|Banks/NBFCs||Interest Rate||Processing Fee||Loan Amount||Loan Tenure|
|Bajaj Finserv||18% onwards||Upto 3% of the loan amount||Up to 30 Lakh||1-5 years|
|Capital First||Negotiable||As per agreement||3 Lakhs-75 Lakh||1-5 years|
|SBI||11.20% onwards||Upto 3% of the loan amount||5 Lakhs – 100 Crore||1-4 years|
|HDFC Bank||15.65% – 21.20%||Upto 2.5% of loan amount||Up to 50 Lakh||1-4 years|
|ICICI Bank||16.49% onwards||Upto 2% of loan amount||Up to 40 Lakh||1-3 years|
|Kotak Mahindra Bank||Negotiable||Up to 3% of the loan amount||Up to Rs 2 Crore||Variable|
|Standard Chartered Bank||Negotiable||2% of the loan amount||Upto 75 Lakh||1-5 years|
|YES Bank||13.35% onwards (Rack Interest Rate)
The actual Interest Rate depends on number of factors which include loan amount, loan tenure etc.
Up to 2.50% of the loan amount
|Up to Rs 50 Lakh||12 – 60 months|
|TATA Capital||19% onwards||As per the Loan Amount||Up to Rs 50 Lakh||12-36 months|
|Axis Bank||The Interest Rate is based on the assessment of the financial profile of the loan applicant, loan amount and credit history.||Up to 2% + taxes as applicable||Up to Rs 50 Lakh||12 – 36 months|
Types of Business Loan Interest Rates
Reducing or Diminishing Balance Rate
Reducing or diminishing balance rate is calculated each month on the remaining loan amount. If you opt for this type, the EMI comprises of interest that is payable for outstanding loan amount for each month along with the principal repayment. The good part is that after each EMI payment, the outstanding amount of the loan is reduced. Hence, the interest rate for the subsequent month would be the calculation of interest applicable only on the outstanding amount.
How to calculate: Interest payable per payment = interest Rate per Payment X Remaining loan amount.
Flat Rate of Interest
A flat interest rate is calculated on full loan amount during the course of its tenure. The interest is charged without considering the fact that the monthly EMIs would decrease that principal amount, and hence the interest rate.
How to calculate: Interest Payable per Payment = (Original loan amount X Number of Years X Interest Rate per annum)/Number of Payments.
Factors that Affect Business Loan Interest Rates
The factors that affect business loan interest rates are as follows:
Type of Lender
Business loan interest rates vary from one lender to another. But if you compare business loan interest rates offered by banks and NBFCs, you will find that banks levy lower interest rates than NBFCs.
Time/Experience in Business
The longer your business is in existence, the better it is for you. However, irrespective of the nature of the business, the minimum business operation of 2 years is mandatory. With more number of years in business, you have a higher possibility of getting a loan at lower interest rates.
The monthly turnover of your business decides if your business is making a profit or incurring losses. In short, it remains a key factor in determining your eligibility to avail a business loan. There are times when the turnover keeps fluctuating. However, maintaining consistency is highly crucial as it helps your lender to determine the loan amount and repayment terms.
A credit score evaluates your creditworthiness and is based on your credit history. In case you have availed a loan in the past and repaid it on time or if you pay credit card bills on time, you will have a good credit score. And, if you have a good credit score, it will work in your favor while applying for a loan. A good credit score will give you more benefits like lower interest rates and flexible tenure or repayment terms.
Collateral is the security, which is pledged to the lender to avail a loan. Higher the value of collateral, the more will be the benefits. Highly valuable collateral like real estate, equipment, machinery, deposits or home equity gives security to the bank. After examining the collateral, the bank may grant you a higher loan amount as the risk is low.
Must Read: How to Get Collateral Free Business Loan?
Nature of Business
The lender usually classifies the loan under Priority Sector and Non-Priority Sector. Loans that fall under Non-Priority Sector have a higher rate of interest as compared to the priority sector loans. Hence, the nature of your business too determines the interest rate on your business loan.
Business Loan Interest Rate EMI Calculator
EMI calculator is an online tool that enables you to calculate your monthly installments without any hassle. All you need to do is feed in the required information:
- The loan amount that you want to avail
- The rate of interest you will be charged
- The tenure till when you can repay the loan amount
- The processing fee
Once done, the calculator will provide you with an estimated amount of your monthly installments you need to pay towards your loan. In a way, it helps you prepare your monthly budget and prevent defaulting on the loan.
Calculate your Monthly EMI on – Business Loan EMI Calculator
How to Get Business Loan at Lower Interest Rates?
Have a Good and Convincing Business Plan
When you approach the loan officer, you need to have a good business plan, which assures to strengthen your financial position in the future. It should reflect stability and growth, hinting security and low risk for the lender. This will help them build trust and offer business loan at low interest rate.
Carry Necessary Documents
No loan application is sanctioned without submitting all the necessary documents. Be well-informed about the documents and proofs you need to carry. This will assure the lender of your genuine intentions. Be sure to provide authentic documents and information; any misleading or ambiguous information can work against you.
List of documents:
- Identity proof
- Address proof
- PAN card of the company
- Trade license or sales tax certificate
- Statement of bank accounts
- Certified copy of partnership deed or sole proprietorship declaration
Choose Suitable Tenure
Shorter the tenure, higher the EMI. Although it may create financial pressure on you, it also means that you will be able to close the loan earlier and pay a lower amount as you save on the interest payout. If paying larger EMIs is comfortable for you, it is advisable to take up this step to pay a lower interest amount.
Special Business Loans
Some lenders have exclusive loan schemes for specific business purposes. These loans are offered at discounted rates compared to general loan that will help you avail other benefits associated with the scheme. For instance, business extension loan, equipment loan or renovation loan may have lower interest rates as compared to a regular business loan.
Business Loans Offered by the Government
The Government of India offers business loans at attractive rates for small and medium-sized enterprises. When you approach a lender, you can check if they provide these schemes by the government. Unknowingly, you may be able to avail loan at the lowest possible interest rate, you never know!
Make the right comparison and choose the most suitable business loan interest rate.
Frequently Asked Questions (FAQs)
Ques: What can business loans are used for?
Ans: A business loan is pretty vast. It has different categories for different purposes. Here are some of the reasons as to why one can opt for a business loan:
- To expand the physical location of your business
- To avail some amount for operational purposes like buying new equipment, funding for new projects etc.
- To expand your existing business
- To increase the working capital for daily operational tasks
Ques: What are the documents required for Business Loan?
Ans: To apply for a business loan, one would require the below mentioned documents-
- Proof of Identity (Aadhaar, PAN, Voter ID)
- Mudra Loan Application Form
- Address Proof (Telephone, Gas, Water, Aadhaar, Voter ID)
- Certificate or registration of the particular business
- Bank Account statement of the past 6 months
- Income Tax Proof
- Passport size photographs
Ques: Is there any need to provide an asset or security to avail a Business Loan?
Ans: There is no need to provide any security or asset in order to apply for a Business Loan. They are collateral free.
Ques: How much loan amount can be borrowed for business loan?
Ans: The loan amount, interest rate, fees and charges mostly depend on the loan applicant’s profile and the financial lender before finalising on the loan amount.
Ques: What are the different types of business loan in India?
Ans: Some of the business loans that are easily available in India are: