Business Loan Interest Rate
Business needs continuous and surplus amount to sustain. A business loan provides the ultimate solution to the businesses by giving them access to credit which can be paid back along with interest rate in the agreed time span. Before getting oneself a business loan, it is important to understand how these loans work.
Similar to a personal loan, business loans are also unsecured in nature and do not require any collateral as security.
Different Types of Business Loan in India
- Demand Loan
- Term Loan
- Loan against Securities
- Cash Credit Facility and Overdraft Facility
- Letter of Credit (LC) Facility and Bank Guarantee
Things to Consider while applying for a business loan
Loan amount: Before applying for the loan, it is important to calculate the loan amount you actually need. Instead of going for a random sum, taking a calculated loan helps in the long run. It is important to keep in mind that if you take a loan of a higher amount then you will have to pay back extra in terms of interest and you will have liabilities for a longer duration. And if you miscalculate and take a loan amount which is lesser than your needs, then the whole point of taking the loan stands still.
Interest rate: Business loan interest rate can be fixed or floating. A fixed rate of interest does not change and remain the same throughout the loan tenure whereas floating interest rates are variable and change over a period of time. Make an informed decision on how different rates will impact the repayments. However, business loan rates are fixed in nature due to their shorter tenure.
Collateral: These days, business loans are usually unsecured in nature and thereby have a higher rate of interest. If you have any liquid asset, then you can choose to give it as security and make the loan a secured business loan with comparatively lower interest rates. Some banks also ask for a personal guarantee from the borrower.
Business Profits: Banks seek income proof to be assured that the loan amount will be repaid on time every month. Banks want to know your profits to get the estimate your standing. An established business needs to provide a trading history of last 2-3 years along with tax returns. Whereas a new business needs to show a cash flow forecast of 2-3 years, insurance, indemnity and balance sheet forecast. New businesses also need to submit their business plan along with their application.
Factors Determining the Business Loan Interest Rates
Banks prefer giving loans to borrowers with a good credit score. A good credit score reflects your credit history in the past and also gives details of defaults if any. An applicant with a credit score over 650 can get a business loan quickly. With a good credit score, one can negotiate with the bank for the best rate of interests. However, some banks also offer business loans to those with not so good credit score. In that case, the business loan interest rate is higher.
Time in Business
The older the business the better chances of it to get the loan. The minimum operation period is 2 years and more irrespective of the type of business.
Banks need to be assured of repayment. That is why they consider revenue as an important factor. They seek consistency and undertake daily balance into consideration to decide upon the loan amount and repayment capacity.
If you have taken a secured business loan, then you will certainly get a better deal in terms of lower interest rates. Higher the value of the collateral more will be the benefits availed as the bank is safe with lesser risk involved. Some of the collaterals for business loans can be home, machinery, deposits etc.
Before making a deal, it is very important to compare business loan interest rates as offered by different banks and financial institutions. Fintech enablers like LoansJagat provide an ultimate platform for the borrowers to check and compare for the best loan products in terms of interest rate, tenure, processing charges, etc. One can apply directly through the LoansJagat platform. The application will be forwarded to the chosen bank. The bank will verify all the KYC and financial details submitted by you before approving the loan. Once the eligibility criteria are met and the bank is satisfied, the loan gets approved. LoansJagat ensures quick disbursal of the loan amount in your bank account.