Financing your business comes at a cost and this is what determines whether the loan is cost-effective or not. In this regard, it’s important to remember that business loan interest rates differ from one lender to another, and hence, you should shop around to find the best deal. While business loan interest rates are affected by external forces like the repo rate and economic conditions, they are also affected by certain factors within your control.
Read on to know what factors have the most significant effect on your business loan interest rates.
Type of business
The lender will first consider the nature of your business and the risk that it is exposed to. For example, if your business is part of the fireworks manufacturing, mining, arms and ammunition manufacturing categories, lenders may charge you a higher interest rate to protect themselves in case of default. At a macro level, lenders also consider the conditions of your industry. The higher the market volatility, the higher interest rate you will be charged.
Type of loan
Business loan are of two types: secured and unsecured. Secured loans carry lower interest rates than unsecured loans thanks to the collateral that you pledge. The lender can protect themselves in case of default by taking possession of the collateral. On the contrary, unsecured loans don’t demand any security and hence lenders charge a higher interest rate to protect their interests.
If your business has been around for many years it indicates stability and the capability to emerge victorious in most circumstances. Thus, lenders see lower risk of default and higher repayment capacity when you have a high business vintage and so result charge a lower interest rate. The opposite is also true.
Lenders are concerned about your and your business’s credit score as it indicates whether or not you’ll repay the loan on time. It signifies your ability to manage credit responsibly and is based on how you have serviced loans and other debts in the past. A score of over 750 is ideal and can help you secure a lower interest rate on your business loan. A bad credit score on the other hand has the opposite effect and may even lead to rejection of your loan application.
Your turnover indicates your business’ profitability, which in turn shows how well you are equipped to repay the loan. Steady and high turnover and good profit projections show that you’ll have the means to repay the loan. As a result, lenders are likely to charge lower interest rates. A bad turnover history, on the other hand, can adversely affect your interest rate.
So if you want to bag the right business loan on favourable terms, work on your shortcomings before applying for one. Also, consider applying with issuers who offer affordable interest rates and other features to make servicing your loan a stress- and worry-free experience.
Avail a Bajaj Finserv Business Loan to get up to Rs.30 lakh at a nominal business loan interest rate so that you can fund your business requirements in time. Withdraw this amount in parts or full as per your business needs and pay interest only on the utilised amount by choosing the Flexi Loan facility. Manage your cash flow better by paying interest-only EMIs throughout the tenor and repaying the principal when the tenor ends. Check your pre-approved to enjoy quick approval and run your business without compromising.