Business loans are excellent sources of finance when an SME or MSME requires funds to grow or expand its horizons. These are unsecured loans that business owners can avail to fund a variety of expenses, like expanding their workplace, purchasing inventory, upgrading machines or equipment, investing in marketing, hiring skilled employees, and others. A business loan in India is also an excellent way to build working capital and sustain business operations.
If you are looking forward to applying for a business loan, one of the most crucial things you must consider is the applicable interest rate. The higher the interest rate is, the bigger will be your EMIs, and the more considerable will be the interest outgo. Although interest rates may vary from one lender to the other, lenders decide your interest rates based on a variety of factors. If you do not want to get caught by surprise, give attention to these factors that lenders often consider while deciding your business loan interest rates.
1. Credit Score
Your personal and business credit score is one of the primary factors lenders consider while deciding your business loan interest rate. Ranging from 300 to 900, the higher your credit score is, the lower the interest rate the lender may offer you. Additionally, the lenders also check your business credit history to decide your business loan interest rate. They use your credit score to gauge your repayment capacity. A high credit score not only helps you achieve a low interest rate but also makes the loan processing much smoother than otherwise. A CIBIL score above 700 and CMR up to 6 with stable income flow is also needed for a successful loan approval.
2. Business Nature
Sometimes, the nature of your business may also affect your business loan interest rates. If your business carries a higher risk, the lender may reject your loan application or charge you a higher interest rate. Depending on the risk involved in your business nature, your business loan interest rate may differ.
3. Business Vintage
A well-established business operational for several years is likely to get a lower interest rate than a newer one. Lenders in India prefer giving loans to businesses that are experienced and reputed in the industry.
For instance, to apply for a business loan at Clix Capital, you must have a business vintage of at least 3 years along with the supporting documents to get loan approval. Being involved in the same industry for several years is a positive indication that you are unlikely to fail. Lenders often prefer such borrowers and offer them lower interest rates and better loan terms.
4. Business Plan
Not all lenders ask for your business plan, but you will need to show your financial documents if your business is an established venture. Looking at these documents, the lenders can determine your business organisation and financial skills.
They want to look for steady growth with sufficient capital. Impressive financial documents prove your credibility and business plan and grab a lower business loan interest rate.
5. Financial Health
The financial health of your business is crucial to determine your business loan interest rate. Sound financials supported by documents make you a more viable loan borrower, as the lender may perceive you as a low-risk borrower and trust you for loan repayment without hassle.
The lender would like to look at a variety of financial documents to check your business profitability. To apply for a business loan from Clix Capital, you need to show the following financial documents along with your identity and address proof:
- PAN Card for a firm, company, or individual
- 6-months bank statement
- Copy of the most recent Income Tax Return form
- Computation of income, audited balance sheet, and profit & loss account for the last 2 years
- Proof of continuity of the business of 3 years, which can be your sales tax certificate, establishment, ITR, or trade license
6. Annual Turnover
Lenders check your annual turnover to determine your business loan interest rates. If you have a high business turnover, the lender may offer you a lower interest rate with an affordable EMI amount. However, they may reject your loan application or charge you a high interest rate if you have a poor turnover. At Clix Capital, you need to have an annual turnover of at least ₹ 1 Crore to apply for a business loan.
7. Profit and Revenue
The lenders check your annual, quarterly, and monthly business revenue before deciding your interest rate. If you do not get good revenue, getting a loan may become more challenging, or you may need to pay a higher interest rate.
8. Repayment History
Another primary factor that may affect your business loan interest rates is your repayment history. A good track record of regular repayments may attract a lower interest rate on your business loan. However, if you are habitual of missing or delaying payments, the lender may charge you a high interest rate even if you have a good credit score.
9. Relationship with the Lender
If you are an existing customer of a lender with a credible repayment history, the lender may agree to offer you another loan at a lower interest rate. Since all financial institutions want good customers, they will not let you go because of a few percentage points. Therefore, your past relationship with the lender also plays a crucial role in determining your business loan interest rates.
If you are looking for an easy-to-avail hassle-free business loan in India, visit us at Clix Capital and apply for a business loan in just a few simple steps. We offer business loans of upto ₹ 50 lakhs at competitive interest rates.
We have easy eligibility conditions and minimal documentation requirements to make business loans accessible to SMEs in India. However, consider the factors mentioned above to minimise your interest rate and grab a lucrative deal to expand your business.