3 Factors that Affect Small Business Loan Interest rates

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Obtaining a nominal rate of interest on your small business loan is vital to ensuring that your venture isn’t feeling the pinch and that your working capital remains healthy. While RBI repo rates stand as a guiding factor for determining interest rates, lenders do a background check and examine particular details of your business before fixing the interest rate for your loan. What are the factors that affect the interest rate on your small business loan? Read on to find out.

Credit score

Before approving the loan amount, lenders will check credit scores: both yours and that of your business. The credit score indicates to the lender your creditworthiness. It basically assures the lender that you are going to repay the finances in a timely manner and that you have the capability to manage credit prudently. This is to say that a handsome credit score will fetch you a business loan interest rates in India as the lender has reasonable guarantee that you will repay without defaulting.

Business type and plans

Financial institutions will try to verify that your business has low risks attached to it. The higher the risks arising due to everyday operation, the greater is the probability of default. So, assume that you want to start an apiary. You could either end up with high revenues through sales of honey or you could end up with devastated bee colonies. This is why lenders will ask you for detailed plans.

In this case, they will verify that you have a good production cycle and that your apiary is set in a location that is not susceptible to dangers like air pollution. The relationship between risks and interest rate is that the greater the risk involved, the higher the interest rate will be.

Experience and profits

Lenders will tend to give experienced customers a lower interest rate than those who are new in the market. However, experience is just not enough. It has to be coupled with proof of profits. Lenders want to be assured that your business is generating good revenues consistently. This makes them feel confident of your repayment abilities.

Another factor that influences the business loan interest rate is the financial institution you choose. Rates differ from one lender to the next and so, approach an institution that offers you an affordable interest rate. The Business Loan not only gives you cost-effective interest rates but also powers your business with instant finances that run up to Rs.30 lakh.

A key advantage of this business loan is the Flexi Loan facility. This allows you to borrow as you go from your approved sanction and pay interest only on the amount utilised. EMIs can consist of only interest payments through the tenor if you so wish, and you incur no additional fees should you make a prepayment. Capitalising on all these benefits allows you to reduce your interest payments by up to 45%!

So ensure smooth cash flow and meet pressing business needs by availing of the collateral-free Business Loan today. It takes just 24 hours to get approval and you can expedite the process by checking your pre-approved business loan offer.

This post is written by Nishant.

Author Bio:

Nishant is a passionate blogger. He has expertise in writing finance articles. He has been serving society as a financial adviser. He loves keeping himself up-to-date with the news and happenings around. He is always open to learning and shares his experiences on his blog – Greetings of the Day

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