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5 Factors that Can Affect Business Loan Interest Rate

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Although the scope of availing business loans has increased on easy terms, it is the business loan interest rate that one needs to take care while applying for it.

A business loan is a facility that can let you borrow as higher as up to Rs.30 lakh from top lenders to cover many aspects of your business which can help it grow easy.

Since business owners need to repay the loan over a tenor in the form of the EMIs, they also need to chalk out repayment plan as that also consists of the interest rate.

The EMI of a business loan comprises of the principal along with the interest rate which you need to pay. If you don’t consider some business loan interest rate factors before applying for the business finance, you may need to pay a higher EMI. In turn, it can affect your monthly business income.

Factors that can Impact Your Business Loan Interest Rate

  • Inflation Rate

The first thing that directly affects your business loan interest rate is nothing but the inflation rate. Lenders will offer you the business loan at a higher interest rate if the rate of inflation is high and vice versa. Hence, every potential borrower must consider the inflation rate to figure out if he/she will pay a lower or higher loan EMI.

  • The Types of Business Loan

Banks and non-banking finance companies (NBFCs) offer two types of business loans – secured and unsecured. Secured ones are those which are provided to you against some collateral or security or a guarantor and will have a lower interest rate. On the other hand, unsecured loans are those that are given against meeting the eligibility criteria of the lenders along with the Credit Score and more. Hence, there is a larger risk on these loans of defaulting by borrowers and that’s why a high interest rate is levied.

  • Personal Credit score
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When you apply for a business loan, lenders will pull out your own credit score and history while processing it for an approval at a lower or a higher rate of interest. If you have maintained a healthy credit score which reads around 750+ or more, you can grab a loan approval at a lower rate. People with poor score will not get a business loan approval at first, and even if they get, they will have to manage a higher loan rate. You can maintain a robust CIBIL score by paying off your credit card outstanding or current loan EMIs by due dates.

  • The Type of Business that you Operate

The business finance is also dependent on the type of business that you operate. Lenders have some business types in high-risk bracket as they consider it riskier than others’. Thus, if you have a business that comes in the risk zone, you may have to deal with paying higher business loan interest rates.

  • Turnover of Your Business

Did your business enjoyed a healthy turnover during the previous financial year? You can reap its rewards by availing a reduced business loan interest rate. On the other hand, you may be awarded a higher rate of interest for hitting a loss in the business. Lenders are confident that business with a healthy turnover or profit will face no issues in the repayment of the loan and hence, can be awarded a lower interest rate.

The Bottom Line

You are now well-versed about the factors that can affect your business loan interest rate. Thus, consider your own business, financial profile and more factors before applying for the business loan so that you can grab a reasonable rate. All the best!     


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