Raising funds for your business is an ongoing process. Even after the initial expenditure of setting up a business is met, it sometimes requires additional money for smooth operations. However, the availability of funds at all times may be difficult. Hence, to balance out your financial requirements, various financial institutions provide business loans. These loans help you to ease out both your financial worries and requirement for funds.
Interest rates on Business Loan starts from 14.99% onwards per annum. However, other factors too influence the final rate of interest decided by the lender that include your profile, business plan, credit score, loan amount, business stability and profit, other financial aspects, industry outlook and risk assessment parameters.
Business Loan Interest Rates 2020
Below mentioned is the detailed table that will help in understanding the latest interest rates, processing fee and loan amount of business loans offered by popular financial institutions:
|Bank/NBFC/Fintech||Loan Amount (Min.-Max.) in Rs.||Repayment Tenure (Months)||Interest Rate (p.a.)|
|Axis Bank||3 lakh||50 lakh||12 – 36||16% onwards|
|Bajaj Finserv||1 lakh||40 lakh||3 – 36||15% onwards|
|Capital First Prime||1 lakh||9 lakh||12 – 36||21% onwards|
|Fullerton Finance||1 lakh||50 lakh||12 – 48||17% onwards|
|HDB Financial Services Ltd.||75,000||30 lakh||12 – 60||15% onwards|
|HDFC Bank||75,000||50 lakh||6 – 48||15% onwards|
|Hero FinCorp||3 lakh||35 lakh||12 – 36||18% onwards|
|ICICI Bank||1 lakh||40 lakh||6 – 48||16% onwards|
|IIFL Finance||1 lakh||7.5 lakh||12 – 36||25% onwards|
|Indifi Finance||1 lakh||50 lakh||12 – 36||22% onwards|
|Kotak Mahindra Bank||5 lakh||75 lakh||6 – 48||16% onwards|
|Lendingkart Finance||50,000||2 Crore||3 – 36||15% onwards|
|NeoGrowth Finance||2 lakh||10 lakh||6 – 24||21% onwards|
|PaySense Services India Pvt. Ltd.||5,000||5 lakh||3 – 36||24% onwards|
|RBL Bank||2.5 lakh||20 lakh||12 – 36||17% onwards|
|Tata Capital Finance||3 lakh||50 lakh||12 – 36||17% onwards|
|Yes Bank *||30 lakh||3 Crore||As per applicant’s profile||10% onwards|
|ZipLoan||1 lakh||5 lakh||6 – 24||24% onwards|
Note: The mentioned interest rates, fees and charges are subject to change and depend on the sole discretion of the bank, NBFC and RBI. GST and service tax shall be levied extra on the mentioned charges.
Note: The above table also contains interest rates of SME loan, MSME loan and Government loan schemes.
* Mentioned interest rate is specifically for the Yes Bank’s working capital loan
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, as compared to NBFCs.
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 loan(s) 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.
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 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:
- Required loan amount
- Rate of interest
- Repayment tenure
- 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?
Prepare a convincing Business Plan
When you approach a 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 will be. 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 SMEs and MSMEs. When you approach a lender, you can check if they provide loan under any government scheme. Make the right comparison and choose the most suitable business loan interest rate.
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.
Fixed Rate of Interest
Fixed/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.
Frequently Asked Questions (FAQs)
Ques. What is the minimum interest rate offered by banks or NBFCs?
Ans. The business loan interest rate starts from 14.99% onwards and can exceed depending on the requirements.
Ques. What is the loan amount offered under business loan?
Ans. The minimum loan amount offered under business loan is Rs. 5,000 and the maximum loan amount can go up to Rs. 2 crore which may exceed as per the requirements.
Ques: What are the different types of business loan in India?
Ans: Some of the business loans that are easily available in India are:
- Term Loans
- Working Capital Loan
- Bill Discounting
- Letter of credit
- MSME Loan
- Mudra loan
- SIDBI Scheme
- Stand Up India
- Equipment Finance
- Government Loan Schemes
Ques: For what all purposes I can use business loan?
Ans: Here are some of the reasons as to why you 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-
- Passport size photographs
- Proof of Identity (Aadhaar, PAN, Voter ID)
- 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
Ques: Is there any need to provide a collateral to avail Business Loan?
Ans: There is no need to provide any collateral/security or asset in order to apply for a Business Loan. They are collateral free.
Ques. What is the repayment period of a business loan?
Ans. The maximum repayment period of a business loan is 5 years.