A Guide To Business Loan Interest Rates

Business loans are ideal for raising adequate capital for businesses. However, numerous factors affect the business loan amount, the most important being the interest rate. This blog will help you understand everything you need to know about the interest rates on business loans.

What Are Business Loans And Their Interest Rates?

When business owners look to raise immediate capital to invest in various aspects of their business, their are two choices; Venture Capital funding or Business Loans. The former forces them to sell a stake in their company to the investors, lowering their control over their business. However, the latter is an ideal choice where the business owners get the amount they need without giving up control.

A business loan is a loan product that offers business owners the required capital, which they have to repay with interest within the set loan tenure.

When business owners avail of a business loan from a lender such as a bank or NBFC, the loan amount offered is attached with a fee, called interest, over and above the principal amount. The lender levies this interest on the loan amount with a rate that is a percentage of the principal amount offered to the business owner.

After taking the business loan, the business owner is legally liable to repay the principal amount with the business loan interest to avoid default or resulting penalties. The lender sets predetermined EMIs that include a portion of the principal amount and the overall interest.

Factors Affecting Business Loan Interest Rates

Numerous factors affect interest rates on business loans, and understanding them is vital to ensure you avail of an ideal business loan. These factors are:

1. Loan Amount

The business loan amount is the first factor that affects the interest rates on business loans. Generally, the higher the loan amount, the higher the interest rate on the business loan. Lenders attach a high-interest rate to business loans with a high amount as the included risk for the lender is also high.

2. Credit Score

A credit score determines your creditworthiness and provides a way for the lender to ascertain your ability to repay the business loan. If you have taken any loan in the past and repaid the interest and the principal amount without defaulting, you will have a good credit score. A good credit score of over 750 out of 900 is a critical factor affecting the interest rates on business loans. The higher the credit score, the higher the chances of getting a low-interest business loan.

3. Nature Of Business

The nature of business and the activities undertaken by the business highly affect the interest rates on business loans. Every lender classifies the business loan based on priority and non-priority sectors. Priority sectors contribute highly to the GDP but face challenges in obtaining a business loan. Non-priority sectors are those which are always ready to lend credit.

Lenders provide low-interest business loans to companies that fall under the priority sector compared to the high-interest rates on loans for companies associated with the non-priority sector.

4. Business Existence.

The years a business has been operating also affect the interest rates on business loans. It presents how well the business has sustained during the tumultuous markets. The longer your business has been operating, the lower the interest rate the lender offers. However, a business must exist for a minimum of two years.

How To Get A Business Loan With A Low-Interest Rates?

If you are a business owner who wants a business loan with a low-interest rate, follow the below-listed tips:

• Maintain a good credit score, preferably above 750 out of 900.
• Try not to default on interest payments to maintain a good credit history.
• Ensure that you have a consistent source of income with a financial blueprint.
• Avail of a business loan only from a reputed and experienced financial entity.
• Use online tools and calculators to ensure the interest rate is affordable.

Avail Of An Ideal Business Loan With IIFL Finance

Fulfilling a business’ capital requirement is vital in ensuring a business's success, which you can fulfill through an ideal loan. IIFL Finance business loan can be the go-to product to satisfy all your business needs. The interest rate is attractive and affordable to ensure the repayment doesn’t create a financial burden. The business loan offers instant funds up to Rs 30 lakh with a quick disbursal process.

FAQs:

Q.1: What are the interest rates on IIFL Finance Business Loans?
Ans: The interest rates on IIFL Finance business loans range from 11.25%-33.75% per annum.

Q.2: Do I need collateral for taking a loan for business from IIFL?
Ans: No, IIFL Finance loan for business does not require the need to pledge any asset as collateral.

Q.3: What is the loan tenure for the IIFL Finance loan for business?
Ans: IIFL Finance offers a loan tenure of five years for a loan for businesses up to Rs 30 lakh.