The interest rate on a business loan is an important factor that every borrower analyses before taking out a loan. In fact, most borrowers' decision to take out a loan is based solely on the interest rate. Business loan interest rates have a significant impact on your loan terms and future company requirements. As a result, calculating the rates and gaining a comprehensive picture of them is most likely a critical task. Typically, interest rates differ from one lender to the next.
What is the definition of business loan interest rate?
Interest rate is the percentage of the principal that a lender charges for the use of assets. Annual Percentage Rate (APR) is used to express the interest rate on a yearly basis.
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When do business loan interest rates come into play?
Most loan and borrowing transactions are subject to interest rates. Individuals take out loans to buy houses, fund projects, start or expand enterprises, or pay for college fees. Businesses take out loans to finance capital projects and expand their business by buying fixed and long-term assets like land, buildings, and machinery. Borrowed funds are repaid in full on a predetermined date or in monthly payments.
It's critical to understand the elements that influence business loan interest rates in order to secure the best discounts on business loans.
We've compiled a list of five of the most significant ones to assist you.
- Credit Score
In India, a borrower's credit score now plays a critical part in evaluating their eligibility. To get the best offer, it is normally suggested that you have a credit score of at least 700. If you have a bad credit score, however, a bank/NBFC may refuse your loan application, or if it doesn’t, you may be compelled to pay a higher interest rate.
What is the lender's repayment flexibility?
As a businessperson, you understand that even the best-laid plans can go awry owing to unanticipated circumstances. It's critical to have an open and honest conversation with your banker about what would happen if you were unable to pay your regular loan instalments. Would your bank, for example, allow you to temporarily stop making principal payments? It's crucial to find out ahead of time, rather than in the middle of a problem.
- Financial health of the business
The financial condition of a company plays a big role in setting the interest rate on a business loan. A company with strong financials is a better candidate for a loan since it can be relied on to repay the debt without difficulty. The cash flow statement, balance sheet, and profit and loss account would be used by the lender to evaluate the fundamentals of your business. If your business is lucrative and carries little risk, you may be eligible for a loan with a reduced interest rate.
- Business Vintage
History of successfully running a business for a longer period of time proves the capabilities of an entrepreneur. Thus, it is more likely that an older, well established business will get access to credit easier than new businesses.
Financial institutions today offer a variety of loan choices to businesses, just as they do to individuals, such as home loans, auto loans, and personal loans. Because India's MSMEs are continually growing, lenders are now offering MSMEs-specific loan solutions.These loans, however, are not the same as traditional company loans.
Kinara Capital has a tech-enabled application process and data-led decisioning process enables us holistically assess a loan application and look at several parameters before deciding the interest rate.
Our business loan interest rate starts at 21% per annum on a reducing rate basis. The loan tenure is 12- 60 months. We have the best loan products for your business needs. You can get asset purchase loans, machine loans and special loans (Her Vikas) for women entrepreneurs.
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