Credit Wisdom

5 Major Factors That Affect Rate of Interest on Your Business Loan

Category: Business Loan

While you might know that different lenders offer business loans at different rates, not a lot of people know that even the same lender offer the business loan to different borrowers at different interest rates. There are several factors which affect the interest on the business loan, making the interest on your business loan different than the interest paid by another borrower.

To get the best deals on business loans, it is very important to know these factors which affect the business loan interest rates. To help you out, we have listed 5 of the most important ones. 

Credit score
In India, the credit score now plays a very important role in determining the eligibility of a borrower. It is usually recommended that you should have a credit score of above 700 to get the best deal. However, if you have a poor credit score, a bank might not approve your loan application, and if it does, you’ll be required to pay higher interest. 

Business experience
While there are several lenders in India which do offer business loans to start-ups and businesses with minimum experience, the interest charged on such loans is usually higher. If you have been involved in the same business for several years, it is a positive sign for the lender, and they will offer you a better deal as compared to a business that is new. 

Type of business
Not just the business experience but the type of business too plays an important role. This is because there are several businesses which are considered riskier as compared to others. If you are involved in one such risky business, you’ll be required to pay higher interest on your loan for business.

Business plan
If it is a new business, you’ll also be required to provide a detailed business plan to the lender and information about how you will be using the loan money. If the plan is not comprehensive and detailed, the bank might approve the loan but might charge a higher interest rate.

The lender will also check your monthly revenue and compared it with the amount that you want to borrow to calculate the interest they will charge on loan. If you are new to the business and your revenue is not very impressive, the lender might charge a higher interest rate.

Most of the business loans are secured type of loans. The higher the collateral is presented, the lower the risk for the bank and the lower will be the interest rate. 

Remember these factors when applying for the loan and don’t forget to compare business loan rates online to get the best deal as per your eligibility and loan requirement.

Tags: Business Loan Articles