Description

Business loans also known as Commercial loans are specifically availed to support the growing needs of the business. It is a debt that the company/individual is obligated to repay according to the loan’s terms and conditions. It can be a secured or an unsecured loan, which can be availed, to  contribute to a business’s goodwill. A business loan can also be availed to gain control over the functioning of the business, rather than approaching the investors. It is a simple way to gain access to funds to fuel the growing business demands. Different banks and NBFC’s offer business loans at varied interest rates. The interest rate of business loans ranges from 14% p.a to 25% p.a.  

Business Loan Fees and Interest Rate

Before you apply for a business loan, you should compare the interest rates, processing fees and other charges with the available lenders in the market. This will aid you in making an effective decision in going with best offers, to avail a business loan. When you compare the interest rate of business loans, you will get to know that, banks levy lower interest rates as compared to NBFC’s. 

What factors affect Business Loan Interest Rates

Credit Score – A credit score determines the creditworthiness of the applicant. Timely payment of debts will make your credit score a healthy one and a good credit score will create a positive impact in the eyes of the lender. The applicants can get the loan at better interest rates with additional features if the credit score is above 750.

Collateral – Availing a business loan by providing collateral has benefits of getting a concession on the business loan interest rates. Collateral is a security against which the applicant avails the loan. Higher the value of the pledged collateral, the more can be the benefits. Pledging the collateral ensures that the loan application will be less risky. High value security like machinery, real estate, home equity, deposits, etc. provides security to the bank in granting the loan amount.

Type of Lender - Business loan is available at varied rate of interest, with different lenders. However, if we take a look, we will find that banks offer business loans at lower interest rates as compared to NBFC’s. 

Nature of Business – The nature of the business determines how secure the business is. Businesses are classified into priority sector and non-priority sector. Businesses falling under the non-priority sector are granted at higher rate of interest than the priority sector. 

Business Existence – The business should have an existence of minimum of 1 years. The higher the number of years a business is operational, higher is the possibility of availing a business loan at lower interest rates. The longer tenure of business establishes, it is not a risk profile and create a sense of belief in the eyes of the lender.

Turnover of Business – The turnover of business plays a major role in deciding the eligibility of loan. The monthly turnover decides if your business is making a profit or running in loss. It helps the lender determine the repaying capacity of the debt of loan.

How to get Business Loan at Lower Interest Rate

Business loans offered by the Government – To cater to the requirement  for funds for SMEs and MSMEs, Government has come up with attractive schemes for business loans at affordable interest rates.  Before finalizing the lender, make an informed choice by checking the Government schemes for business loans

Special business loans – Few lenders offer business loans such as renovation loans, equipment loans, etc at lowered interest rates as compared to a regular business loan. These loans are specifically devised for specific business purposes. 

A great business plan – In granting a business loan, the lender keeps a very keen eye on the business plan of the applicant. A good business plan should show signs of growth, stability, security and minimal risk for the lender. It will build trust in the eyes of the lender to approve the loan application.

Choosing short tenure – If it is convenient for you to choose a shorter tenure, it will be beneficial in saving on the outgoing interest amount. A short tenure might create a financial burden on you, but it will help you close the loan early and can save a great amount on the interest payout. 

Furnishing all the relevant documents – Make sure to provide complete and genuine information to avoid future complications. The lenders verify every document provided by you. A loan application may be rejected if all the documents are not in place.

Types of Business Loan Interest Rate

For entrepreneurs one of the major concerns in operating a business is to timely arrange for the capital. Whether the business is small or big, it requires funding. To run a business smoothly, the requirement of capital will always be there at regular intervals. Sometimes, the requirement is for a bigger amount, and at times the requirement may be small. According to the need, the borrower can choose to avail business loan accordingly. There are two types of business loan interest rates, which we will discuss in detail below.

  1. Flat Rate of Interest: Flat interest rate is the interest rate which is  calculated on the full loan amount during its tenure without considering that monthly EMIs would gradually decrease the principal amount and thus the interest rate. 

Let us take an example, to get a clear understanding of the concept in a better way. 

Suppose a borrower has taken a loan amount of Rs 1,00,000 at a flat rate of interest at 10% p.a for a tenure of 5 years. He will have to pay Rs 20,000 which is the principal repayment for the amount of (1,00,000/5) + Rs 10,000—interest at 10% of this 1,00,000 is equal to a total of Rs 30,000 per year. Over the tenure of the loan, the borrower will end up paying Rs 1,50,000 that is (2,500*12*5).

Reducing or Diminishing Rate of Interest – Reducing or Diminishing rate of interest rate is calculated each month on the remaining loan amount. In this type of calculation, the EMI comprises interest rate which is payable for outstanding amount of loan for each month along with the principal of repayment. The loan amount gets reduced, after each EMI payments. Hence, the calculation of interest for the following month is done on the outstanding amount of loan. 

Let us take an example. If a borrower has taken a loan amount of Rs 1,00,000 with reducing rate of interest method of 10% p.a for about tenure of 5 years, then the EMI amount would decrease with every month’s repayment. The first year, the borrower will have to pay Rs 10,000 as interest; which on the second year get reduced to Rs 8,000 on the reduced principal amount of Rs 80,000 and so on till final year, where the borrower will have to pay Rs 2,000 as interest. 

* The final rate of interest in business loans is totally at the discretion of the lender. It is dependant on many factors like the credit score, business stability, industry outlook, financials, and other risk assessment parameters.

Business Loan Eligibility Criteria

Parameters

Business Loan Eligibility Criteria

Age

21-65 years 

CIBIL Score

750 and above

Eligible Entities

Self Employed Non-Professionals- Public Limited Companies Involved in the business of manufacturing, trading and services, sole proprietors, partnership firms, private limited companies. 

Self Employed professionals – CA, CS, Doctors, Architects.

Business Stability

Self Employed Professionals- 1 years

Self Employed Businessmen – 2 years

Loan Amount

From 1 lakh to 1 Cr

Interest Rate 

13.50 % onwards

Tenure

1 year to 6 years

Banking Stability

Minimum 6 months

Annual Turnover

Rs 15 lakh and above

Processing Fee

0 % -2 % of the loan amount

Other Criteria

All features vary according to city and nature of business. 

Business Loan Interest Rate Details

The interest rate of business loan differs from bank to bank and the final discretion lies with the lender. Apart from that, business loan interest rates are dependant on various other factors.

Below is the list of banks providing business loans and their details:

SBI Bank Interest Rate:

SBI is the country’s largest bank with over more than 25,000 branches. It provides loans to self-employed professionals and non- professionals for the expansion of business with the following benefits.

  • The business loan with SBI can be foreclosed anytime after paying 6 EMIs by paying 3% foreclosure charges.
  • By paying 1% prepayment charges, an applicant can prepay part of the loan amount.

Business loan with SBI is available at below mentioned details:  

Interest Rate

9.50 % onwards

Processing Fee

Upto 2% to 3% of the loan amount

Tenure

12-48 months

Loan Amount

Rs 5 lakhs to Rs 100 Cr

HDFC Business Loan

HDFC provides business loans to help individuals expand their businesses. Few benefits of applying for a business loan with HDFC Bank are:

  • The process of loan application is easy and provides flexible loan tenure.
  • No collateral or guarantor required.
  • The option of a balance transfer.
  • Dropline overdraft to save interest

Interest Rate

15% onwards

Processing Fee

0.99 %-2.50 %

Tenure

6 months to 48 months

Loan Amount

Rs 75,000 – Rs 50 lakh

ICICI Bank Business Loan

Some of the benefits of availing business loan from ICICI bank are:

  • Easy application process
  • Fast loan processing
  • Loan for both self-employed professionals and businessmen

Interest Rate

15% onwards

Processing Fee

0.99% - 2%

Tenure

6 months to 48 months

Loan Amount

1 lakh to 40 lakh

Axis Bank Business Loan

Axis bank business loans can be availed by self- employed professionals and businessmen at affordable interest rates. Few benefits of Axis Bank Business Loan are:

  • Minimal paperwork and quick disbursal
  • Various repayment modes are available of auto-debit, PDCs or ECS. 
  • Same interest rate throughout the duration

Interest Rate

14.25% onwards

Processing Fee

1.25% - 1.50%

Tenure

12 months – 36 months

Loan Amount

Rs 3 lakh – 50 lakh

Punjab National Bank Business Loan

Few benefits of availing business loan from Punjab National Bank:

  • Part of the loan amount can be prepaid after paying 1% prepayment charges.
  • The business loan can be closed anytime after paying foreclosure charges.

Interest Rate

12.65% onwards

Processing Fee

1.8% + taxes

Tenure

12 months-60 months

Loan Amount

Rs 50,000—Rs 15 lakh

Apply Business Loan 

FAQs

Q1How can I apply for a business loan in my city?
Interest rate for different cities varies. You can compare the interest rates for different cities at Afinoz  website https://afinoz.com/ and choose the lender, which best suits you.
Q2Will the co-applicant will be affected if I default in my loan?
Yes, the co-applicants CIBIL also will be defaulted, if you default in repayment of the loan. 
Q3Will I be eligible for a business loan if I have a poor credit score?
You may be eligible to apply for a business loan with a bad credit score, provided the interest rate charged will be higher by the lender. You will also be required to apply with a co-applicant who will bear the responsibility in case of your non-payment of dues.
Q4Can I reduce EMI on a business loan? 
Loan EMIs can be reduced if the bank allows part prepayment or full prepayment.  Few banks allow pre-payment after repayment of 6-12 EMIs and some banks allow only after 1 EMI. If you have an additional amount to pay off the debts, you can opt for the part prepayment or full repayment.
Q5How much time does it take to get the loan amount disbursed?
If all the documents are in place, it approximately takes 15 days to get the loan amount disbursed. Few banks can give you an in-principle approval provided all documents are in place and the results of their field visit are positive. In such cases, it may take around a week’s time to get the loan disbursed.
Q6For what purposes business loans can be used?
The funds availed from business can be utilized for: Buying machinery, business equipment, or to fund new projects.  For the expansion of the existing business. For the expansion of the business area.
Q7What factors affect the business loan Interest rate?
3 main factors affect business loan interest rate. They are: Higher the business turnover, the interest rate will be lower. Business existing for a longer tenure, may grant you a lower interest rate. The rate of interest will be lower for a higher loan amount applied for a business loan.