Business Loans provide a go-to solution for all your business financing requirements. Starting from managing the day-to-day expenses of your business to expanding operations, purchasing equipment or paying staff salaries, you can meet every need with this credit option. Furthermore, applying for a Business Loan is not a hassle anymore.
Today, you can easily apply for a business loan in Pune or any other city online using the website of a reputed financial institution. Even though this application process has become easier, you still need to repay it. In this regard, one factor that affects your loan amount is the interest rate. But what are the factors that influence this rate? Let’s find out.
Factors influencing the Business Loan interest rate
Here are some significant parameters that affect the Business Loan interest rate.
- Credit score of the business owner
Credit score highlights your creditworthiness as a borrower, and this score is a result of your previous debts and how you have managed them. Therefore, NBFCs prefer applicants with a high credit score as it ensures they are reliable enough to manage their debts well.
Typically, this score ranges between 300 and 900; if you have a score of 700 or above, you become eligible for a business loan of up to Rs 50 lakh. As a result of maintaining a good credit score, you can secure a better interest rate for the loan.
Having said that, if your credit score is low, you should consider improving it. With sound financial planning and proper management, credit scores can be improved. Then you can apply for a business loan and get a low-interest rate.
- Annual turnover of the business
The annual turnover is another aspect that affects the interest rate of your business loan. A good turnover implies a high chance of paying back the EMIs on time; the interest rate also becomes competitive. At the same time, a poor turnover indicates a higher probability of default. Then, the lender charges a high-interest rate.
Therefore, the key to getting a competitive interest rate on a business ;oan is to meet the turnover criteria set by the lender. Usually, NBFCs ask for a minimum turnover of Rs 1 crore.
- Repayment history
Another major factor that influences the business loan interest rate is the repayment record of the applicant. So, as an applicant, if you have a clean repayment history devoid of any delays and defaults, you can secure a better loan deal. If your repayment history includes such irregularities, you are in trouble, as securing a business loan at a higher interest rate becomes a reality.
Therefore, the repayment history is something you cannot ignore and must work on to stay on the positive side of things.
- Business vintage
If your business is well-established and has been in operation for at least three years, you are more likely to win the lender’s trust. A business in operation for a long time usually has a solid financial base, which helps them to repay its debt easily.
A business that has been recently set up is more likely to get a high-interest Business Loan or even a loan rejection. You can easily find the business loan information related to this on your preferred lender’s website.
These are some of the essential factors that affect the interest rate of a Business Loan. Since the capital requirement is a persisting issue with every business, keeping these tips handy can help you find the right financing at a competitive interest rate.
About the Author
Amaira Sharma is finance expert and former business growth strategist who has more than 8+ years experience in the industry, now she helps others to get better financial stability and standards. She loves to write useful tips on personal finance and businesses.