One of the most common searches that every business owner conduct is to find a lender that provides one of the most affordable and cheapest business loan interest rates in India. What if we told you that getting a low-interest loan is now within your hands? You can get a low-interest business loan by focusing on the factors that influence your interest rate. Check out the pointers listed below to learn more.
Factors That Influence a Business Loan Interest Rate in India
Nature of Business:
One of the foremost factors that influence business loan interest rates in India is your business type. The more the risk involved in your business, the higher will be your business finance interest rate. To understand this in a better way, simply keep in mind, if you are into a seasonal business or any other risky business, the financial institution will either reject your business loan application or will levy a high-interest rate.
Credit Score:
A credit score is also one of the crucial factors that determine the business loan interest rate in India. The higher your credit score, the lower will be your loan interest rate and vice versa. As a business owner, if you have cleared all your past dues, check with your previous lender whether or not they have sent a loan closure update to the credit bureau or not. Also, don’t forget to take NOC from your previous lender. This is because the NOC serves as proof that you do not have any outstanding liabilities.
Business Experience:
The more experience you have, the greater the benefit you will receive. Here we are not only talking about your company; we are also talking about its finances and funding options. Financial institutions prefer businesses that have been in operation for a long time. The older your business is, the lower will be your business loan interest rate in India and vice versa. However, before you start rejoicing, keep in mind that this isn’t the only aspect that influences the loan interest rate.
Annual Turnover:
When performing a credit appraisal for business loans, financial institutions assess your company’s annual turnover. They evaluate your business’ sales chart, profit and loss statement, balance sheet, among other financial papers. To get an affordable business loan interest rate in India, you must be into a profitable business. In addition to this, if your desired loan amount is significantly high, the lender will only approve your application if your business financial papers have been audited by a competent individual such as a Chartered Accountant (CA).
Debt-to-Income Ratio:
When you apply for a business loan, the financial institution will look into how many outstanding liabilities, or say, existing debts, you have on your shoulder. The greater the number of outstanding debts, the higher will be your business loan interest rate in India and vice versa. If you are not familiar with the term “debt-to-income ratio”, then first familiarise yourself with this. A debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes towards the repayment of your existing debts. Financial institutions usually prefer borrowers who have a debt-to-income ratio of less than 50%. To calculate this ratio, use the formula given below.
Debt-to-Income Ratio = Total of Monthly Debt Repayment ÷ Gross Monthly Income
Include all types of debts in your monthly debt payments, such as credit card dues, personal loans, business loans, or any other sort of loan you have.
Collaterals:
You might be surprised to find this point in this article, don’t you? Business loans, as we all know, are an unsecured source of funding. Yet what if you meet all of the criteria but your lender rejects your application simply because your credit score is 50 points below the optimal number? You will need some solid evidence that can help you lower the risk of lending to your profile. You can do so by putting some worthy business assets as collateral with the financial institution. It will help you in not only obtaining loan approval but also obtaining an affordable business loan interest rate in India.
Business Plan:
When it comes to securing a low-interest business loan, having sound financials is not always enough. You will need a solid business layout. When performing a credit appraisal, the financial institution may also ask you to present a detailed business plan. The plan should consist of a future sales projection, anticipated revenue, and a few more. If the financial institution is satisfied with your plan, they will grant you a business loan at a low-interest rate.
Relationship with the Lender:
The majority of people recommend applying for a business loan with the same lender from which they previously obtained a loan. This is because if you have paid off your dues on time, then being a loyal customer, financial institutions also want to retain you by offering better interest rates and offers.
To Conclude:
If you are looking for an affordable business loan interest rate in India, then try and work on the above-influencing factors.
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