Types of Business loan Interest Rates
1. Flat Rate of Interest
A flat rate of interest follows the technique of calculating the interest rate on the initial loan amount. The reduced value of the principal after one or two payments is not considered.
2. Diminishing Rate of Interest
A diminishing interest rate is a technique where the rate of interest reduces as the principal amount reduces. For instance, when the borrower starts repaying the loan amount in installments, the principal amount reduces. According to this technique, the interest is applied to the remaining principal amount and not the original borrowed amount.
Compare Best Business Loan Interest Rates & Charges 2022
| Banks/NBFCs | Type of Institution | Interest Rate |
|---|---|---|
| Hero FinCorp | NBFC | Up to 26% p.a. |
| NeoGrowth Finance | NBFC | 19% – 24% p.a. |
| Tata Capital Finance | NBFC | 19% p.a. onwards |
| Lendingkart Finance | NBFC | 1.5% – 2% per month |
| Indifi Finance | NBFC | 1.5% per month onwards |
| ICICI Bank | Bank | 17% p.a. onwards |
| RBL Bank | Bank | 17.50% – 25% p.a. |
| Bajaj Finserv | NBFC | 17% p.a. onwards |
| Fullerton Finance | NBFC | 17% – 21% p.a. |
| Kotak Mahindra Bank | Bank | 16% – 19.99% p.a. |
| IDFC First Bank | Bank | 14.50% p.a. onwards |
| Axis Bank | Bank | 14.25% – 18.50% p.a. |
| ZipLoan | NBFC | 1% – 1.5% per month (Flat ROI) |
| FlexiLoans | NBFC | 1% per month onwards |
| SBI | Bank | 9.50% - 16.30% p.a (Linked to MCLR) |
| HDFC Bank | Bank | 12.50% - 19.50% p.a |
| Central Bank of India | Bank | 8.70% - 12.80% p.a |
| South Indian Bank | Bank | MCLR (1 Year) + 4.2% |
| DCB Bank | Bank | 10.25% - 18.67% p.a |
| Yes Bank | Bank | 16.25% onwards |
| Bandhan Bank | Bank | 10.55% - 18.80% p.a |
| Aditya Birla Finance Ltd. | NBFC | 17% - 26% |
| Punjab National Bank | Bank | MCLR + 1.25% p.a |
| Arohan Financial Services Ltd. | NBFC | 20.10% - 26.99% |
| Capital First Ltd. | NBFC | 22.00% - 24.00% |
| Clix Capital Services Pvt. Ltd. | NBFC | 19% |
| Deutsche Bank | Bank | 11.49% |
| Edelweiss Financial Services Ltd. | NBFC | 18% |
| Equitas Small Finance Bank | Bank | 18% |
| Fortune Financial Services - Kapital Tech | NBFC | Custom |
| HDB Financial Services Ltd. | Bank | 22% - 36% |
| India Infoline | NBFC | 18% - 25% |
| IndusInd Bank | Bank | 16% -18% |
| Magma FinCorp Ltd. | NBFC | 17.5% - 21% |
| Standard Chartered Bank | Bank | 17.25% - 20% |
| Tribe Tech Private Limited | NBFC | 12% - 36% |
Tips to Avail Business Loan at a Low-Interest Rate
To avail business loans at a lower interest rate, you can keep in mind the following suggestions.
- Improve your credit score and try to maintain it above 750.
- You must have financial stability and maintain a good loan repayment history.
- A decent source of income must be maintained.
- Enhance your creditworthiness by paying loan EMIs, bills and credit card payments on time.
- Build a good relationship with the bank and open an account.
- Instead of short-term business loans, apply for a long-term business loan.
- Don’t close your old credit cards or bank accounts.
- Apply for a business loan with top public or private sector banks.
- Submit or provide valuable security or collateral, if you are applying for a secured business loan.
Credit Score and its Importance
What Is a Credit Score?
Credit score depicts the creditworthiness of a consumer. It refers to a number between 300 and 900. If the number is higher, the borrower looks reliable to potential lenders.
The credit score is dependent on a consumer’s credit history, which includes the number of open accounts, repayment history, total levels of debt, and other factors. Credit scores are used by lenders to assess the probability that a borrower will repay the loan within a stipulated period.
Scores that are 750 or above are deemed as good.
Importance of a Good Credit Score
A good credit score makes sure the borrower gets several advantages over those who don’t have any credit score or those who have a low score. The importance of having a good credit score is proportionate to the advantages you can get and those are mentioned below.
1. Lower Interest Rates
One of the biggest advantages of having a good credit score is that banks may offer credit cards and loans at lower interest rates.
Also, you can avail of other benefits like a discount on the loan processing fee and become eligible to get a higher loan amount.
2. Your Chances of Loan and Credit Card Approvals Increase
If you have an excellent credit score, you are considered by lenders as low-risk. Therefore, the chances of your loan and credit card getting approved quickly are higher.
3. Get Access to High Rewarding Credit Cards
When you have a good credit score, you become eligible to getting access to the highest rewarding credit cards available in the market.
You can get those credit cards that offer the best rewards and the lowest interest rates. In addition, you can avail rewards like travel points, cashback, etc.
4. Get approval for a Higher Credit Limit
Consumers with good credit scores get approved for credit cards with a higher credit limit. Creditors will readily lend you money because your creditworthiness is proven.
5. Become Eligible for Pre-Approved loans
Borrowers with good credit scores are eligible for pre-approved loans. These pre-approved loans are offered by banks to their existing customers with a good credit history.
So, if you are thinking of business expansion or need working capital to run your day-to-day business activities and want to apply for a loan, you must maintain a good credit score.
Factors that Affect Business Loan Interest Rates
These are a few factors that affect business loan interest rates:
1. Nature of Business
Certain types of businesses are considered riskier than others. If your business has a high-risk factor, most banks and NBFCs will charge a higher rate of interest. The interest rate will not take into consideration the amount of business experience you have accumulated.
2. Business Vintage
The loan charges and interest rates depend on your business vintage. If your business is at least three years old or more, you will get a lower interest rate.
3. Monthly Turnover
Decent or profitable monthly turnovers assure lenders that the loan will be repaid on time. Healthy business financials is a sign of consistency, and it gives lenders the confidence to provide flexible repayment terms.
It would help if one can show a good minimum annual turnover to showcase their creditworthiness.
4. Credit History
Credit score or history is one of the most critical factors in determining the business loan interest rate. If you have a good credit score, you can secure loans at reasonable interest rates.
A good credit history ensures you are highly unlikely to default on your payment and you will pay your EMI and credit card bills on time. That’s why all banks and NBFCs review credit scores before they approve loans.
5. Collateral/Security
When business loans are secured against a security or collateral, it reduces the risk for lenders. Therefore, loans are given at reasonable interest rates. On the other hand, unsecured business loans are provided at a higher rate of interest because the risk is assumed by the lender.
6. Type of Lender
It is important that you conduct thorough market research and carefully study the loan provider. You have to learn about the interest rate methods, EMI policy, processing fees, etc. The interest rates will differ from one financial institution to the other. You must make an informed choice according to your specific requirement.
Business Loan Balance Transfer Online
BLBT or business loan balance transfer is a credit facility in which consumers can transfer their existing business loan from one bank to another. You can also do so online and at a comparatively lower rate of interest.
The primary reason for making balance transfer is to lower the EMIs and choose a lower interest rate for the outstanding balance of your business loan amount.
FAQs
You can get the lowest interest rate on business loan by maintaining a good credit history, providing a valuable security or collateral and ensuring your business has a profitable annual turnover. Also, it would be better if your business is older than three years. Financial stability and consistency makes lenders feel confident and you can get higher loan amounts approved at reasonable interest rates.
Furthermore, you can sign up on Yubi to compare 750+ lenders to pick the one that best suits your needs.
The minimum amount you can get through a business loan is Rs. 10,000 and the maximum amount you can avail of is up to Rs. 2 crores with a maximum loan term of 48 months. However, the maximum loan amount will depend on your credit history, business vintage, annual turnover, etc.
The business loan interest rate might be fixed or floating. It depends on the lenders or banks. However, a floating interest rate is typically offered by NBFCs, while banks prefer a fixed rate of interest. So, you have to compare the different financial institutions and their offers to make your decision.
There’s no rule that you have to provide security or collateral for availing of business loans. So you can avail collateral free SME loans or MSME loans. But if you are applying for secured loans like a POS loan, cash credit, letter of credit, equipment finance, bill discounting and machinery loan, you have to provide a security or collateral.
Therefore, it depends on the type of business loan you are applying for. It can be secured or unsecured.
The minimum repayment period of a business loan is twelve months. The maximum repayment period is five years. In some special cases, the repayment period can exceed up to six years.
The pre-closure or foreclosure charges for business loans are not fixed and they vary from lender to lender. The charges can range from nil to 5% of the balance outstanding loan amount.