Understanding Business Loan Interest Rates in India
As of my last update in August 2023, business loan interest rates in India typically ranged from approximately 7% to 25% per annum. However, the exact rate can vary significantly based on several factors, including the type of loan, lender, borrower's profile, loan amount and tenure, and whether the loan is secured or unsecured. It’s important for potential borrowers to check with specific banks or financial institutions in India for the most accurate and current rates, as these can change post-August 2023.
Factors Affecting Business Loan Interest Rates in India
Several lending institutions in India provide business loans to Small and Medium Enterprises (SMEs) and Micro, Small, and Medium Enterprises (MSMEs). While most lenders seem to offer similar deals, the actual interest rates and terms may vary based on several factors, including:
Loan Type
Different types of loans, such as term loans and working capital loans, may have different interest rates. For instance, a term loan may have a different rate compared to a working capital loan.
Lender
Banks, Non-Banking Financial Companies (NBFCs), and fintech lenders all offer varying interest rates, which can significantly affect the total cost of the loan.
Borrower's Profile
The creditworthiness of the borrower, including their credit score, business history, and revenue, can significantly influence the interest rate. A borrower with a strong credit profile is likely to receive a lower interest rate.
Loan Amount and Tenure
Larger loans or those with longer tenures may come with different interest rates compared to smaller or shorter-term loans. For instance, a loan of Rs. 10 lakhs for 5 years may have a different interest rate compared to a loan of Rs. 5 lakhs for 2 years.
Collateral
Secured loans, which are backed by collateral, often have lower interest rates compared to unsecured loans. Unsecured loans come with higher risks for lenders and hence higher interest rates.
Interest Rate Determination by Lenders
Although there is no fixed interest rate for business loans in India, lenders determine the rate based on several factors. These include:
Loan Amount
Larger loan amounts typically come with higher interest rates.
Credit Rating
The higher the applicant’s credit rating, the lower the interest rate.
Annual Turnover
A higher business income and turnover often result in lower interest rates.
Financial Obligations
A lower debt-to-income (DTI) ratio can lead to a lower interest rate.
Current Business Loan Interest Rates in India
The exact percentage of the loan interest in India can differ from bank to bank. However, generally, business loan interest rates start from 14.99% per annum. The interest rate can also vary depending on the lender, which includes the applicant's profile and creditworthiness, business plan, credit score, required loan amount, repayment tenure, business vintage, and other financial aspects.
Recommendation and Case Study
If your business is at least 2 years old, you can consider Ashv Finance for excellent business loan offerings. As a business owner myself, I have had a positive experience with them. Here’s why I chose Ashv Finance to help with my business growth:
Easy Loan Application Process: The process is straightforward and user-friendly.
Fast Approval: The approval process is quick, providing a fast track to your loan.
Loan Disbursal in 5 Days: The loan is disbursed within 5 days, allowing you to use the funds quickly.
Collateral-free Loans: You don’t need to provide collateral, making the process more convenient.
Minimum Documentation Required: You need to provide only essential documents, reducing the burden during the application process.
Flexible Tenure: You can choose a flexible repayment tenure that suits your business needs.
Cash-flow Based Evaluation: Ashv Finance evaluates your loan based on your business's cash flow, providing a more personalized approach.
I strongly recommend Ashv Finance. You can learn more about their loans and their processes on their website and apply for a loan there!