All You Need To Know About Interest Rates For Small Business Loans
A business loan can come in real handy for an new and growing business—since you can use the loan amount to finance everything from purchase of equipment and inventory, rent building space, to payments to vendors. When your business is running short of funds and you require help immediately, you still want to be sure you are getting the best deal possible on your small business loan. Which is why, when looking for a small business loan that suits their funding needs best, most business owners tend to ask lenders a question which is perhaps most significant for them: “What is the interest rate associated with this loan?”
However, inquiring about the interest rate for a small business loan is not enough. You need to also determine whether it is a fair amount. This is where asking what the average small business loan rate is a good idea. Not only will it help you small business loan rate you might expect yours to look like but also whether or not you’re likely to qualify for a business loan.
Here’s a breakdown of the interest rate for small business loans in India:
What small business loan rate should you expect to pay?
Small business loan rates can be either fixed or variable and generally range between 10 and 16 percent, depending upon a number of factors. The absolute lowest business loan rate a lender will charge you is called the prime rate. The prime rate is supposedly the rate lenders offer to borrowers with the lowest chance of defaulting, which is typically large corporations. However, there may be times when lenders charge such big and secure customers less than the prime rate. Just as the prime rate fluctuates with the ebb and flow of the economy, so does the interest rate for small business loans.
What determines current business loan rates?
The interest rate for a small business loan varies and is computed on a case by case basis. One factor that determines the business loan rate is the size of the loan. Smaller loans typically come with higher interest rates. Why: Since smaller business loans are repaid at a faster rate than larger loans, lenders do not earn as much profit from small loans as they do from large business loans. Lenders may also offer lower business loan rates for a certain tenure, and you should check these carefully.
Small business loan interest rates also depend on the type of business being funded. Small businesses and start-ups inevitably have a higher risk profile than large corporations, which is why they are almost always offered a higher business loan rate. This is because the lender has to account for the chance such businesses default on their loan. However, not all hope is lost. As a small business owner, you may still get a lower business loan rate if you can show the lender that investing in your company is a safe bet.
Other factors that can affect the interest rate for small business loans include your personal credit score, the credit score of your business, the number of years you’ve been in business, the length of time you’ve been earning a profit, your business’ annual revenue and the state of the economy.
Are there any other costs involved?
Remember that interest rate for small business loan constitute only a part of your expenses for borrowing money. The total cost of your loan combines your business loan rate with all sorts of additional fees and charges. Many lenders will charge you a processing fee of up to 2 percent of the loan amount. When you are researching unsecured business loan rates, you must check whether a lender requires you to take an insurance policy when availing the unsecured loan. The insurance premium differs from lender to lender and depends on the risk coverage under various policies. Some lenders will require you to pay prepayment or foreclosure charges when you repay your loan partially or pay the entire loan amount before time. In order to make an informed decision, you must include the cost of all these fees and charges when comparing small business loan rates.
How to get the best small business loan rates?
While it’s a great idea to shop around for the best interest rate for small business loan, make sure you do not submit business loan applications to multiple lenders at the same time. This is because every loan application that you make is recorded in your credit report. When potential lenders pull out your report to check your credit history, they will consider these multiple applications as indications of a credit-hungry behaviour on your part. This may reduce your chances of getting a loan and even lead to a higher business loan rate. Another way to ensure a decent rate is not to fall for marketing gimmicks by loan agents, who may try to entice you with a lower small business loan rate while being aware that the final rate will be higher. To avoid this happening to you, contact a lender’s authorized representative only, and get the business loan rates in writing before you submit the documentation for processing.
Having a Flexi Loan account with Bajaj Finserv means you pay interest only on the amount you’ve utilised from your loan. What is more, business loans from Bajaj Finserv allow you to prepay the loan using idle funds. You don’t need to submit any extra documentation if you want to re-avail the amount you’ve repaid during the loan tenure.