BusinessFinance

Business loan interest rate in India- What to know

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Setting up your own venture or expanding your settled business, every organisation needs financial help to grow in the market of thousand competitors. To rescue from your financial problems, a business loan can act as a catalyst for your company to flourish. But while you make a decision of taking out a loan, it is best to know the important details about business loan interest rate in India. It will give you a fair idea as interest rate plays a major role while looking for financial options  since the rates fluctuate as per different scenarios. In general, there are two types of interest rates:

Fixed interest rate:

Fixed rates are set in for the loan duration. For example, if you take out a five-year loan, the interest rate will not alter during that time. With fixed rates, you can adequately plan your EMI of loan.

Variable interest rate:

Variable rates aren’t set in stone and might alter throughout the life of the loan. Now, variable interest rates are model aftermarket rates. The lender will raise or lower your interest rate depending on the market state. It means the amount of your monthly EMI will change if interest rate rises.

Now, let’s throw some light on the facts that affect¬†the business loan interest rate in India:

Business type:

The nature of your business is the most crucial element impacting your business loan. Your business type shows what sort of work the organisation is conducting. Company’s reputation, business location describes loyalty and faithfulness in the market, it proves that the company is not blacklisted. Well, depending on your worthiness in the business, lenders decide your business loan interest rate in India and determines the outcome of the transaction.

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Credit rating agencies:

A credit score is a numerical measurement of a person’s or company’s creditworthiness. The credit rating/score indicates if the borrower has previously defaulted on loan payments and whether he is worthy of trust with a new loan. When you¬†apply for a business loan, credit rating is critical in making or breaking it. A credit rating agency (CRA) evaluates and assesses the reputation of an individual or a corporation. To put it another way, these agencies look at a debtor’s income and credit lines to determine whether they can repay the loan or is there any credit risk involved.

Established business:

Financial institutes may reduce business loan interest rates in India to expand your trade if you have been in business for a long time. Keep in mind that owing to defaults or non-payment cases, lenders may impose higher interest rates for startup business loans.

Company income:

The interest rate is also based on your annual turnover; each lender has a different rate. If your business income is high, your interest rate will be lower, and you will be charged higher if it is low.

Earning & profit:

Before settling on an interest rate, the lender looks at your company’s monthly, quarterly, and annual income. It will compute your loan interest rate, if the lender does not receive any excellent revenue, your loan application may be approved, but you will be charged at a higher interest rate.

Repayment record:

The repayment record is another vital aspect that influences business loan interest rates in India. If you have a strong payback history, you are more likely to receive a reduced interest rate.

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Appropriate relationship:

Any financial institution can charge you a cheaper interest rate if you are a regular and a reliable customer. Always strive to make your relationship flawless so that you can benefit from the low-interest rate facility.

All these factors control the interest rate. So, if you apply for a business loan, make sure to rock-solid your credibility, it helps you get the loan at a low-interest rate along with fruitful outcomes.

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