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What is a Business Loan Interest Rate?
Every business needs funds for growth, expansion, digitalisation, and sometimes to meet operating costs. In such situations, a business loan can prove helpful. It is a financing option that enables companies to expand or meet their current business demands, such as machinery purchase, staff expansion, and working capital requirements. In return, you pay the interest rate on the borrowed money over a set period.
However, before availing of a business loan, you must know all about different types of SME business loan interest rates, charges, and the factors that determine your business loan rate of interest.
At Hero FinCorp, we offer the most competitive and cost-effective interest rate on a business loan in India. Depending upon the various factors and risks involved in lending, our business loan rates go up to a maximum of 30%. In addition, we let you choose between the two types of small business loan percentage rates - fixed and floating. So, do know the interest rate on a business loan, before you apply for it.
Business Loan Interest Rate Fees, and Charges.
At Hero FinCorp, the interest rate and charges associated with business loans are kept at a minimum. Refer to the table below for more details:
Maximum
Loan Amount
Rs. 5 Lakh to Rs. 50 Lakh
Maximum
Loan Tenure
1 Years (Min.) – 4 Years (Max)
Interest
Rate
Starting from 14% P.A.
Processing
Fee (Non-Refundable)
As described in Sanction Letter cum KFS
Pre-payment
Charges
• Pre-Payment is not allowed within 12 months of
repayment start date (i.e. Lock-in Period)
• After Lock-in Period, pre-payment charges will be 5%
plus applicable taxes on Principle outstanding
Repayment
Swap Charges
Rs. 2,000/- + Applicable Taxes (Per request)
Bounce
Charges (per transaction)
Rs. 700/- (Per Bounce)
Account
Statement/ Amortisation Schedule
NIL
Foreclosure
Letter Issuance
INR 1000 + Taxes (per loan account)
How to Calculate Interest on Business Loans?
To calculate your unsecured business loan interest rates, you can use two methods—the flat rate method or the diminishing rate method.
Flat Rate Method.
Under this, the interest rate for a business loan is computed on the initial business loan amount. Regardless of how many instalments you have paid, it does not consider the outstanding principal amount. To calculate the business loan low rate through this method, use the formula below:
Interest Payable = (Principal Amount х Interest Rate х Repayment Term) / 100
Diminishing Rate Method.
Under this, the rate of interest for a business loan is calculated on the outstanding balance and not the entire initial loan amount. To calculate the business loan interest rate using this method, use the following formula:
EMI = P x r x (1+r) n / (1+r) n-1
Where,
P stands for the loan amount
R stands for the interest rate
N means maximum tenure for business loan
How to Get the Lowest Interest Rate on Business Loan in India?
Do the following to get the lowest business loan interest rate in India,
- Maintain a healthy credit score by paying your existing debt EMIs on time within the business loan maximum tenure.
- Avoid switching your business and be stable in your existing business
- Maintain a regular flow of income and focus on increasing your business's annual turnover and revenue.
- Properly maintain your business financial record and get them audited, if necessary, by a certified professional such as a Chartered Accountant.
- Maintain a positive relationship with your lender so that you can receive the best loan terms and offers in the future.
Factors Affecting Small Business Loan Interest Rates in India.
Some of the common factors that impact the business loan rates in India are:
Nature
of Your Business
If you run a seasoned or speculative business, then it can negatively impact your application for a business loan with a low interest rate. However, there is a lending sector classification, and if you fall under the priority sector lending category, you can easily acquire a business loan with the lowest interest rate. Due to the risk involved, the non-priority sector receives a higher interest business loan.
Business
Existence
As the experience grows, the risk associated with running a business decreases. Therefore, if you have spent more years in your existing business, you have a better chance of securing a low interest business loan.
Business
Turnover and Revenue
Interest on business loans in India is also influenced by how well your business is doing. You are more likely to obtain the lowest business loan interest rate if your company has a high annual turnover and generates adequate revenue. When approving a loan, we consider your company's net earnings after paying all the business expenses.
Business
Cash Flow
As most business loans are unsecured, we assess the company's liquidity status. Businesses that are struggling to maintain a healthy cash flow are less likely to be approved for low-interest business loans than those that have sufficient cash on hand.
Credit
History
This is, without a doubt, one of the most important factors affecting your business loan approval and interest rate. If you have defaulted on any of your previous debts or are not disciplined in your EMI payments, the chances of your loan being approved would be slim. And if you manage to get your loan sanctioned, you are most likely to pay a higher interest rate.
How to Reduce Business Loan Interest Rates and Charges?
By implementing these strategies, you can save money on your business loans and improve your business's financial performance. Take a good look at them before you decide.
Improve
Credit Score
Maintain a good credit score by making timely payments and managing existing debts responsibly. A higher credit score can lead to best business loan interest rates.
Negotiate
with Lenders
Engage in negotiation with lenders to secure lower interest rates and reduced charges. Provide strong financial statements and a solid business plan to strengthen your bargaining position.
Opt
for Collateral
Offering collateral can lower the risk for lenders, leading to reduced business interest rate and charges.
Maintain
a Strong Financial Profile
Demonstrate a healthy cash flow, stable revenue, and good business prospects to convince lenders of your creditworthiness, potentially resulting in better loan terms.
Prepay
or Refinance
Consider prepaying a portion of the loan or refinancing to secure a lower interest rate if feasible and cost-effective.
Maintain
a Positive Banking Relationship
Build a strong relationship with your bank by maintaining regular deposits, fulfilling loan obligations, and utilising other banking services. This may make them more inclined to offer favourable rates.
FAQs.
We charge a maximum of 30% interest on business loans. However, the interest rate is completely based on the borrower's profile. Depending upon several factors such as credit history, nature of business, and business age, you can secure a lower interest rate as well.
To qualify for a lower interest on a business loan in India, make sure you have a regular flow of income from your business. You must also ensure that you have a strong credit history and that your company has been in operation for a long time.
To calculate business loan interest rate, you can either use a business loan EMI calculator or can calculate it manually by using the following formula: EMI = P x r x (1+r) n / (1+r) n-1, Where P stands for the loan amount, R stands for the interest rate, and N means loan tenure.
It is a one-time fee charged at the time of business loan application processing. This fee covers the costs of analysing your credit history, administrative costs, and other expenses related to the business loan approval procedure.
Business loan charges include foreclosure charges, cheque bounce charges, document processing fees, legal and incidental charges, and more.
A business loan APR is an annual percentage rate that includes the business loan interest rate as well as the fees and charges associated with your loan.
The business loan processing fee varies among lenders in India. Typically, our range is up to 2.5% of the loan amount. However, the specific processing fee will depend on factors such as the loan amount, lender's policies, and the borrower's credit profile. It is important to carefully review the terms and conditions of the loan to understand the processing fee structure.
The business loan at low interest rates for self-employed individuals in India can vary depending on several factors, including the borrower's credit profile, business stability, loan amount, and the lender's policies. Generally, business loan interest rates for self-employed individuals in India range from around 14% to 30% per annum.
