Business Loan Interest Rates

Business Loan Eligibility Criteria

The eligibility criteria for a business loan varies from lender to lender, however most banks and NBFCs follow a common set of basic criteria as below mentioned:

• Age: 21 – 60 years
• Business Vintage: 1 year & above
• Credit Score: Minimum 700 or above
• Annual Turnover: Shall be defined by lender
• Nationality: Indian citizens with no past credit default with any lender

Government Business Loan Schemes with Low Interest Rates

Over the years, The Government of India has offered loans under various schemes that aim to support startups, retailers, wholesalers, small vendors/shopkeepers, MSMEs, women entrepreneurs, and small business owners. The Government business loan schemes are mostly collateral-free, providing subsidized loans and regular loans at low interest rates.

Here is a list of major Government business loan schemes offered at comparatively low interest rates, as compared to regular business loan schemes offered by private and public sector banks and NBFCs.

• MUDRA Loans (Pradhan Mantri MUDRA Yojana – PMMY)
• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
• Stand-Up India Scheme
• Prime Minister’s Employment Generation Programme (PMEGP)
• SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)
• Credit Linked Capital Subsidy Scheme (CLCSS)
• PSB Loans in 59 minutes

Business Loans Hidden Charges

While planning to avail business loans, it’s important to check the hidden charges included and not just the interest rates. The hidden charges can significantly impact the total cost of your business loan. Some of the charges to check in the loan agreement before signing it are listed below:

• Processing Fee
• Loan cancellation charges
• Administration charges
• Penal charges or late payment penalty
• Part-payment/Pre-payment/foreclosure charges
• Renewal charges
• Balance Transfer charges
• Documentation charges
• Cheque Bounce charges
• Stamp Duty
• Legal Fees
• Loan insurance costs
• Switch Fees
• Annual maintenance charges, etc.

How to Get a Low-Interest Business Loan?

To avail business loans at low interest rates, you need to be calculated with your credit profile, financial profile, loan type, and lender selection. Find below the key measures to be followed to avail low-interest business loans.

• Check and compare business loan types on Paisabazaar before applying
• Maintain a healthy credit profile
• Choose correct loan type (Secured/Unsecured)
• Avail Government-backed loan schemes
• Check your eligibility to avail loan subsidies
• Provide accurate and updated financial documents
• Provide collateral/security, if required to secure a loan

Factors Affecting Business Loan Interest Rates

The interest rate set by lenders offering business loans are primarily determined on the basis of their cost of funds, net interest margins and the credit risk assessment of their loan applicants. Here are the main factors that can influence your business loan interest rates:

• Business income: Lenders offering business loans consider their loan applicants’ business income while setting the interest rates. Some lenders require their loan applicants to have a minimum monthly/annual income or turnover to be eligible for availing business loans. Lenders usually consider loan applicants with higher incomes as having a higher capacity to repay their loan, thus posing a lower credit risk for their lenders. Therefore, lenders are more likely to offer lower business loan interest rates to loan applicants with higher business incomes.

• Nature of the collateral/security: Business loan lenders usually consider the nature and value of the asset pledged as security or collateral while assessing loan applicants of prospective borrowers. Those furnishing security of a higher value are more likely to get business loan approval at lower interest rates.
• Type of loan facility: Several lenders offer different business loan interest rates depending on the type of loan facility. Lenders offer different business loan facilities including working capital, invoice discounting, cash credit, term loan, overdraft (secured or unsecured), commercial property loan, etc.
• Credit Scores: Lenders usually consider the credit scores of their business loan applicants, especially those opting for unsecured business loans, while setting their interest rates. As lenders consider higher credit scores as a sign of creditworthiness, those having good credit scores are more likely to get lower interest rates on unsecured business loan schemes. Those having higher credit scores also pose lower credit risk to lenders. Lenders may deny business loan approval to loan applicants having lower credit scores or approve their loan applications but at higher rate of interest in order to compensate for undertaking higher credit risks. Therefore, prospective applicants should always aim to build and maintain high credit scores to improve their business loan eligibility and maximise their chances of availing business loans at lower interest rates.

FAQs on Business Loan Interest Rates

What are current interest rates on business loans?

The business loan interest rates offered by banks and NBFCs starts from 14.99% p.a. However, the final or exact interest rate offered shall depend on your credit profile, loan type, nature of business and opted loan scheme.

How do banks decide the interest rate for a business loan?

Lenders determine the business loan interest rates based on various factors, such as borrower’s credit risk profile, financial health of business, loan type, external benchmark rates, collateral offered, nature and size of business and existing relationship with the lender.

What is the minimum and maximum loan amount can I avail through a business loan?

The minimum and maximum loan amount offered by lending institutions shall depend on various factors, such as type of lender (bank/NBFC), loan type (secured/unsecured), and business profile. However, the loan amount ranges between Rs. 10,000 and Rs. 1 crore, may exceed as per loan requirements.

Which bank offers the lowest business loan interest rate?

The exact business loan interest rate you may be offered shall depend on factors, such as your credit score, loan type (secured/unsecured), business financials, and loan amount and tenure.

How can I get a low-interest business loan?

You can check and compare all the leading Banks/NBFCs offering business loan deals from Paisabazaar and choose as per your business requirements.

Do MSMEs offer concessional or special business loan interest rates?

Yes, MSMEs often qualify for concessional or special business loan interest rates, specifically when borrowing through various Government-backed loan schemes, such as MUDRA under PMMY, PMEGP, CGTMSE, CLSS, SMILE under SIDBI, etc.

What is the minimum credit score required for a low-interest business loan?

The minimum credit score required for a low-interest business loan typically falls in the range of 650 to 750 or above based on the borrower’s credit profile, loan type, nature of business, etc.

Can I negotiate my business loan interest rate with a bank?

Yes, you can surely negotiate on your offered business loan interest rates with a bank, primarily if you have strong financials or an existing relationship with the bank.

How does the tenure of a business loan affect the interest rate?

The loan tenure can significantly affect the interest rate and overall loan cost, as shorter tenure comes with low interest rates but at higher monthly EMIs. However, longer tenure may have high interest rates with lower EMIs, resulting in increased overall cost.

Is collateral required to get the lowest business loan interest rate?

Yes, in various cases offering collateral or security can help you avail business loans at low interest rates, as lenders can recover the loss of asset in case of default. Moreover, it increases your negotiating power with the existing lender over the offered interest rates.

How do I get the lowest interest rate business loan?

You can check and compare all the leading Banks and NBFCs offering business loan deals under one online platform and choose the one, as per your business requirements, loan amount and repayment tenure.

What is the minimum and maximum loan amount can I avail through Business Loan?

The minimum loan amount has no limit to borrow whereas the maximum loan is up to Rs. 2 crores for unsecured business loans that are collateral free. Most of the financial institutions offers loans starting from Rs. 10,000.

Is the business loan interest rate fixed or floating?

It depends on the banks or lenders to offer fixed or floating interest rates. However, most banks prefer Fixed interest rates over Floating. Largely, the interest rates offered by Private sector banks is fixed.

Is there any need to submit collateral or security with the bank to avail Business Loan?

There is no need to submit any collateral/security or asset in order to apply for an unsecured business Loan, except few secured business loans like a Letter of Credit, Cash Credit, POS loan, Bill Discounting, Equipment Finance, and Machinery loan that are secured business loans.

What is the repayment period of a business loan?

The minimum repayment period is 12 months, whereas the maximum repayment period is of 5 years, however, in may exceed as per business requirements.

What are the pre-closure/foreclosure charges for business loans?

The pre-closure or foreclosure for business loans shall vary from lender to lender and ranges from Nil to 5% of the balance principal outstanding amount.