Types of Business Loan Interest Rates

Business loans are an important tool that can help you set up and exponentially scale up your business. The interest rate of business loans is often the most important factor while choosing a business loan since it can determine how costly the repayment could be. 

Business loans are often beneficial since they can be availed as collateral free business loans. The interest rate of business loans can range widely and it is important to pick one that best meets your requirements. 

Read on below to learn the different types of interest rate of business loans available in India. 

  • Diminishing Interest Rate:
    If you apply for a diminishing interest rate of business loan, you will be charged an interest rate on the outstanding loan amount only. Since equated monthly installments (EMIs) involve repaying both interest and a portion of the principal amount, the amount outstanding continues to decrease. Thus, the interest is only levied on the outstanding amount each month.
  • Fixed Interest Rate:
    The fixed interest rate remains unchanged throughout the duration of the loan and its repayment. A fixed interest rate for an instant business loan online ensures that you pay the same EMI for every month during the loan repayment tenure. 

Factors that Cause Changes in Interest Rate of Business Loans

The interest rate on business loans can be impacted by several factors. The rate of interest offered can also differ from lender to lender as well as from borrower to borrower. Read on below to learn about a few factors that impact the interest rate of business loans.

  • Borrower’s Profile:
    Aside from the business, the borrower’s profile also greatly impacts the interest rate of business loans. For instance, the credit profile of the borrower needs to be above a certain level for them to secure a loan at all. However, if they do secure a loan but their credit score is too low, they might be subject to high interest rates.
  • Repayment History:
    If you have previously taken loans for yourself or for the business in particular, your repayment history with it will influence the interest rate of the business loan you avail now. If you had previously delayed repayment or were otherwise unable to repay your loans, you will be subject to a higher interest rate on this business loan.
  • Nature of Business:
    The nature of a business also has a role to play in determining the interest rate of a business loan. For instance, businesses whose products or services are seasonal or cyclical or easily impacted by market forces might see a higher interest levied for loans. However, businesses that can remain steady in the face of economic adversity are usually subjected to comparatively nominal interest rates.
  • Business’ Revenue or Plan:
    In case your business has been operational for a while, its revenue and financials will play a role in determining the rate of interest on the business loan you avail. In case the business is yet to be set up, the business plan will have a role to play in determining the interest rate. If the lender finds the financials and business plan sustainable and capable of generating steady revenues, the interest rate on business loan online  is likely to be lower than the interest rate offered for companies with risky business plans.
  • Market Conditions:
    The existing market conditions and state of the economy also have a role to play in determining the interest rate offered with business loans. Market conditions usually impact the demand for companies’ products and services and lenders are likely to take such factors into consideration while determining the interest rate of business loans.

Conclusion

Once you understand the factors that can impact the interest rate on business loans offered to you, there are several steps you can take to ensure that you avail a lower interest rate. For instance, you can ensure that your debt to income ratio remains low. If your credit score is low, there are several measures you can take to fix that too.