Introduction 

Businesses need to raise funds at different stages, sometimes even after the initial expenditure of setting up a business is met. It may require additional capital for smooth functioning. However, the availability of funds at all times could be difficult. Hence, to balance out your financial requirements, various financial institutions offer business loans. These loans help in easing out a business’s financial worries and the requirement for funds.

Business Loan interest rates normally start from 14.99% onwards per annum. Many factors could influence the final rate of interest decided by the lender that includes the profile, business plan, credit score, loan amount, business stability and profit, other financial aspects, industry outlook and risk assessment parameters.

Business Loan Interest Rates Comparison 2020

Here is a detailed table to compare the latest interest rates, processing fee and loan amount of business loans offered by popular financial institutions:

Bank/NBFC/Fintech Loan Amount (Min.-Max.) in Rs. Repayment Tenure (Months) Interest Rate (p.a.)
Axis Bank 3 lakhs 50 lakhs 12 – 36 16% onwards
Bajaj Finserv 1 lakh 40 lakhs 3 – 36 15% onwards
Capital First Prime 1 lakh 9 lakhs 12 – 36 21% onwards
Fullerton Finance 1 lakh 50 lakhs 12 – 48 17% onwards
HDB Financial Services Ltd. 75,000 30 lakhs 12 – 60 15% onwards
HDFC Bank 75,000 50 lakhs 6 – 48 15% onwards
Hero FinCorp 3 lakhs 35 lakhs 12 – 36 18% onwards
ICICI Bank 1 lakh 40 lakhs 6 – 48 16% onwards
IIFL Finance 1 lakh 7.5 lakhs 12 – 36 25% onwards
Indifi Finance 1 lakh 50 lakhs 12 – 36 22% onwards
Kotak Mahindra Bank 5 lakhs 75 lakhs 6 – 48 16% onwards
Lendingkart Finance 50,000 2 Crore 3 – 36 15% onwards
NeoGrowth Finance 2 lakhs 10 lakhs 6 – 24 21% onwards
PaySense Services India Pvt. Ltd. 5,000 5 lakhs 3 – 36 24% onwards
RBL Bank 2.5 lakhs 20 lakhs 12 – 36 17% onwards
Tata Capital Finance 3 lakhs 50 lakhs 12 – 36 17% onwards
Yes Bank * 30 lakhs 3 Crore As per the applicant’s profile 10% onwards
ZipLoan 1 lakh 5 lakhs 6 – 24 24% onwards

 

Factors Affecting Business Loan Interest Rates:

The top 4 factors that determine the Business loan bank interest rates in India are as mentioned below:

  • Credit History and Record: To get a loan sanctioned a business’s credit score is important. If you are not a loan defaulter, you can get loans from any bank and at reasonable rates in India. All banks public or private review the credit score of the applicant before giving credit with the lowest interest rate for a business loan

  • Tenure of the company: The business organization should be for more than 3 years in operation irrespective of the kind of business. The older the business house, the greater the chance of a credit facility.

  • Turnover of the Business: If the company has a reasonable monthly turnover, then the lender will assume that there will be no default in the borrower ‘s repayment. Therefore, it’s inevitable that a creditor reviews the financial credibility of the borrower before deciding on the loan amount.

  • Collateral: Sometimes the borrower has to pledge an asset as security to the bank or NBFC, against a loan sanction. The bank can take a financial risk against security and offer a bigger amount of loans. The borrowers can offer their home equity, real estate, equipment, personal house, or other financial policies as collateral.

Types of Business Loans

  • Secured Loans for Businesses - These loans are those which are taken against some type of personal guarantee or any valuable asset as collateral. Inventory loans, equipment loans, term loans and loan against property are secured business loans.

  • Unsecured Loans for Businesses - In many situations, businessmen and self-employed prefer to take unsecured business finance with no collateral requirement because of the following reasons:

    • Short turnaround time of 5 -15 days as compared to secured loans

    • No collateral or security required to get this loan

    • Reduces your dependence on friends, relatives or money lenders for borrowing for urgent or seasonal business expenses

Tips to Improve the Chances of Getting Business Loan Easily

If a borrower does not fulfil the bank's eligibility criteria, the bank may reject the loan application. Here are a few tips to help improve a business’s chance of getting a loan application approved.

  • Improve Credit Score – Begin by identifying the factors that have resulted in a low credit score. Credit score can be adversely affected due to late payment of credit card or default in outstanding loan EMI payments. Defaulting and late payments, both result in bad credit score. It is extremely important to maintain a healthy credit repayment track record and make all your payments on time. Always ensure that you have adequate balance in your bank account to make ECS transactions.

  • Avoid multiple loan applications - A business loan application can be made to multiple banks to improve the chance of getting a loan on time. However, applying for a loan at multiple banks at the same time increases the chances of the loan being rejected as each query gets captured in your credit report. Customers are also unaware that any loan that is rejected by a bank, has a less chance of getting approval at other banks as well. Banks tend to become more cautious in lending to customers who have been rejected by other banks.

  • Choose your Bank wisely – Research about the various banks that offer best business loan interest rates. Choose a bank that offers fast service with low interest rates. You must also calculate your loan eligibility using an online Eligibility Calculator to get an estimate of your loan eligibility and your ability to service loan repayments from your monthly cash flows. 

  • Business Existence – Generally, banks give loans to businesses with a minimum business existence of 3 years. For new businesses, start-ups and loss-making businesses, chances of getting an unsecured business loan are low. In this case, you should explore the options of secured business loans.

  • Keep Repayment Capacity in Mind – Determine the loan amount that you can easily repay in future. If you apply for a loan amount which is higher than your eligibility, it can create doubt in the mind of the lender and lead to rejection of your loan application. So, make sure you choose the correct loan amount that you can comfortably service.

  • Maintain Financial Records - As a business entity, it is extremely critical that you have your GST registration in place. Also, it is advisable to keep an audited record of your financial statements, as the same is an important set of documents referred to by the bank at the time of calculating your eligibility.

  • Keep Track of Credit Score - As a business entity which needs to borrow frequently from banks, it is advisable to access your credit score report regularly and do regular timely corrections in your report.

End Note

For a business to run smoothly, proper funding is essential. Irrespective of whether it is a small scale or large scale one, free flow of cash is always required for various needs. Entrepreneurs usually prefer to keep their cash handy and borrow low-interest rates Business loans from the financial institutes. Business loan interest rates could differ across banks and lending institutions and are influenced by RBI guidelines.