Complete Entrepreneur’s Guide to Business Loan Interest Rates in 2022

It doesn’t matter where you are in your entrepreneurial journey. A business loan for entrepreneurs can be an invaluable resource. It can help get your company off the ground or expand your operations.

But, remember that you must repay loans in full, plus interest. They are not like grants or venture money before you apply for one. So, you must have a strategy to make the most of your financial windfall.

Consider the interest rate and fees associated with the borrowing next. All loans include interest for education, property, and commerce. When deciding on a loan program, the interest rate is crucial. That is because little fluctuations in the rate can add up to significant savings. Or, expenditures over the life of the loan.

In this article, we’ll talk about business loan interest rates and more!

Business Loan Interest Rate

Interest on a business loan for entrepreneurs is the cost of borrowing money. It is paid back to the lender together with the principal. We express it in a percentage of the loan’s principal.

The APR represents the overall cost of a loan when you factor in interest and fees. It is the gold standard for analyzing and contrasting various interest rates. The interest rate on a business loan for entrepreneurs can differ greatly based on several factors. For example, the borrower’s credit history, the lender, and the state of the economy.

The interest rates for Piramal Finance are 17% p.a onwards.

How to Prepare for a Business Loan Application?

Preparing ahead of time will give you a better chance of receiving a good loan offer. Hence, starting early is crucial.

We recommend that you have the following in place before approaching lenders:

1. Formulate a business plan

A reputable lender is interested in learning how you plan to use the loan money. Lenders will be more likely to provide funding if you show a clear need for and use of the requested funds.

2. Improve your own and your company’s credit

When you apply for a company loan, the lender will check your credit. Also, if your company doesn’t yet have an established credit history, they can rely on this.

High-credit-score borrowers are more likely to be granted favourable interest rates. (About 750 or more is considered an “excellent” score.) Paying your credit card in full each month before the due date is a great way to establish credit. Pay off your loans and keep your balances below 30% of your credit limit. This is crucial if you don’t have time to improve your credit to optimal levels before applying.

3. Build a bond with a financial institution

It is a good idea to first approach a lender for a modest loan. This is important if you plan to take out a larger loan in the next 6 months or more. But, make your monthly payments on time. Due to this, the lender will have more faith in you. Also, it may provide better interest rates when you’re ready to take out a larger loan.

Factors Affecting Business Loan Interest Rate

Interest rates on company loans are affected by the following variables:

1. Nature of Business

Lenders typically divide loans into two categories: Priority Sector and Non-Priority Sector. Non-Priority Sector Loans carry a greater interest rate than Priority Sector Loans. So, the interest rate on your company’s loan will depend on the type of business you run.

2. Incorporation and Existence

The longer you can keep your company going, the better off you will be. Yet, a minimum of two years in business is required, and this is true regardless of the industry. So, having been in operation longer increases your odds of qualifying for loans.

3. Monthly Revenue

Whether your company is profitable or not, depends on its monthly sales volume. In a nutshell, it is still a major consideration when applying for a commercial loan. At times, the turnover rate keeps swinging. But, consistency is of the utmost importance. That is because it aids the lender in determining the loan amount and terms.

4. Credit Rating

Your creditworthiness depends on your credit score. Timely loan and credit card payments can attain a good credit score. 

Applying for a loan will go more smoothly if your credit score is high (750 or higher). A high credit score can do wonders for you. For example, you can access preferential interest rates and payment plans. 

5. Collateral

Collateral refers to the security you put in for a loan. The greater the value of the collateral, the greater the advantages. The bank is protected by the borrower’s provision of extremely valuable collateral. For example, real estate, equipment, machinery, savings, or home equity. 

The bank may decide to lend you more money after reviewing your collateral. That is because they perceive your request to be low-risk.

6. Type of Lender

Different banks charge different interest rates for a business loan for entrepreneurs. Suppose you compare the interest rates on a business loan for entrepreneurs. In that case, you will discover that banks typically offer lower rates.

Conclusion

Business loans for entrepreneurs are a great way to get the funding they need to grow. But, the interest rate is the most influential factor in determining a business loan. We hope this blog post taught you everything you need about business loan interest rates.

Short on funds? Apply for a quick personal loan with Piramal Finance and get up to Rs. 10 Lakhs.