Tips To getting Low Business Loan Interest Rates 2019

Business loan interest rate is certainly the first factor that a business owner thinks about when planning to avail a loan for the business. The interest rate is influenced by a number of factors. These factors together increase or decrease the business loan interest rate in India. And so when availing a small business loan, the business owner must know about these factors in depth. However, there are several factors that affect the business loan rate of interest. There are few costs also associated with the loan that makes it rather cheaper or costlier. These costs include file charges, processing fee, prepayment charges, EMI bouncing charges, etc. All these costs together with the rate of interest for a loan make APR- Annual Percentage Rate. When availing a business loan, the business owner must consider APR. Nonetheless, since the interest rate is a major contributor to APR, the business owner must give it due importance. Let’s take a look at a few tips that will help in grabbing the deal in terms of low business loan interest rate. CIBIL or Credit Score Every lender, before approving or disapproving loan application, checks the CIBIL score of the borrower. CIBIL score is a numeric representation of the creditworthiness of the borrower. It ranges between 300 and 900. A higher credit score represents that the businessman is more credible to lend money. And a low score represents that the borrower is not very credible to get a loan for the business. It goes without saying that no lender would ever want to risk their money. So, they lend money to borrowers with a high score at a low interest rate as compared to the one with a low score. In a nutshell, the businessman must ensure that he has a high score to get a loan at a low-interest rate. Type of Lender The type of lender a loan is being availed from also determines the interest rate. And when talks about the type of lender, there is usually two type of loan lenders in India- traditional lenders and modern lenders. The traditional lenders (usually banks) are very stringent with their rates of interest and they very rarely agree to change it. On the other hand, modern lenders are lenient with their terms and conditions as well as interest rates. Fintech companies (NBFCs) and online lenders come under the modern lender’s category. Type of Business Credit policies differ from one lender to another. One lender may consider one business profile risky while others may be fine the same profile. The lender will view the type of business and so, he would either reject the loan application or offer loan at the high interest rate. If any lender is already shortlisted, it is important to go through his credit policies. And if they consider the profile negative, a search for a new lender must be initiated. So, instead of searching for which bank gives the lowest interest rate for the business loan, the search must be conducted on their credit policies. Collateral Collateral or security is an asset which is hypothecated against the loan amount. Most lenders require collateral as a back-up in case of default by the borrower. If the business owner is not able to repay the loan, the lender can sell off the asset to recover losses. This lowers down the risk for the lender. And with less risk, the interest rates are also low. However, some may believe that collateral loans are offered at low interest rates as compared to collateral-free loans. But such is not reality. There are several business owners who offer unsecured loans at low interest rates. They take several other features of the business into consideration which is discussed in the next point. Business Financial Health Business vintage and its financial health are also important factors that are often considered by many lenders. The financial health is determined by cash flow statement, profit & loss account, balance sheet, etc. All these factors together help in determining if the business would generate enough funds to be able to repay the loan on time. And keeping this in mind, the interest rate is offered. Now that you know about the factors that affect business loan interest rate and tips to get a low rate deal, you can zero in on a low interest rate loan. However, as conveyed, APR must also be taken into consideration before finalizing the deal.