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Factors Affecting Commercial Loan Interest Rates
Credit score
In India, it is used as a qualification criterion for obtaining business loans. If the business owner’s credit score is above 700, the loan application is more likely to be accepted. In contrast, loans to small businesses with poor credit history seem to cost more in the form of higher interest rates.
Business background
Your work experience is important when trying to advance in your career, and your work experience is important when considering starting a new business or expanding an existing one.
Annual sales
The average earning potential of a small business is measured by its annual profits. Banks and lenders typically research financial statements by looking at the sales details of the business over a period of several years. The average income of a small business is measured using the same data.
Collateral
The interest rate for a business loan varies depending on whether the borrower opts for secured or unsecured loans.
Type of lender
Different types of credit institutions, such as banks, NBFCs, and institutions similar to NBFCs, will charge different interest rates.
Business loan requirement
Applicants must be between the ages of 25 and 55 to be considered. Below are the basic documents required for a business loan to be sanctioned. However, the list of documents varies depending on the bank and the type of business loan.
Last year’s income tax returns
Last 3 years Audits / Provisional Finances
Latest bank statements for the last 6 months
Performances for the current year and forecast turnover
Declaration of sole proprietorship or certified copy of the partnership deed
A certified copy of the constituting act and the articles of association
PAN card for business, business or individual
Proof of identity
Proof of address
Important things to know about the business loan
- Individuals and businesses who take out secured loans have collateral such as inventory, goods, equipment, etc. The interest rate will be lower here.
- Unsecured loans allow businesses to borrow money without having to provide collateral. Interest rates are high because the risk of banks is high.
- Commercial loan processing fees can vary from 2% to 6% of the sanctioned amount, depending on
- on the bank or financial institution. Some companies may also charge a fixed fee as a processing fee.
- Interest rate, processing fees, pre-closing fees, paperwork fees, partial payment fees, default fees, and other fees are all imposed on business loans.
- Banks and other financial companies will not fund 100% of your business loan needs. They look for margins ranging from 10% to 30% of the total amount of money required for the business.
List of banks offering the lowest interest rates for business loans
| Name of the bank | Interest rate |
| SBI | 11.20% – 4.30 p.m. (linked to MCLR) |
| Bank of Maharashtra | 14.50% from |
| HDFC Bank | 15% – 21.35% |
| Axis Bank | 15.5% from |
| ICICI Bank | 16% and more |
| Kotak Bank | 16.00% |
| Corporate bank | 13.55% from |
| Bank Dhan Laxmi | 12.90% from |
| RBL Bank corporate loan rates | 16.25% |
| IndusInd Bank | 14.00% |
Conclusion
The interest rate on a business loan is determined by your business, the loan amount requested, and your previous relationship with the bank. Most banks charge a minimum processing fee of 2% to 3% on loans. Since many business loans are unsecured, it is a good idea to obtain an insurance policy on behalf of the borrower. Banks usually charge prepayment or foreclosure fees, which can be as high as 5%. Check and see if the low interest rate you receive is followed by hefty prepayment penalties or foreclosure. Note that some business loans cannot be repaid on time.
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