Calculation of Business Loan Interest Rate
At the time of availing of a business loan, the lender offers the principal amount with a business loan interest rate which is the extra amount borne by the borrower at the time of loan repayment. Hence, you must determine the business loan interest rate for the desired loan amount beforehand to understand your financial obligations.
The basic formula to calculate EMI and interest rates on business loans is:
P * r * (1+r) ^n / ((1+r) ^n-1).
You can understand how to calculate the MSME loan interest rate on business loans from the below example:
Here, “P” is the principal amount, “R” is the rate of interest per month and “n” is the loan tenure. You can understand how to calculate the MSME loan interest rate on business loans from the below example:
Let’s say that you want to take a business loan of Rs 45 lakh (P), with an interest rate (r) of 18% and a loan tenure (n) of 5 years. Knowing these factors, you can calculate the MSME business loan interest rate by putting the figures in the above formula:
- P = Loan Amount
- R = Rate of Interest
- N = Loan Tenure
Total Interest = Rs 23,56,225, which in percentage terms refers to 34% of the total repayment value of the loan.
The above method of manually calculating the payable interest can be complex. IIFL Finance has designed an online business loan EMI calculator to let you calculate the SME loan interest rate aspect along with the overall due interest on the loan.
You can head over to the IIFL website to use the business loan EMI calculator by entering some basic information such as the desired loan amount, the loan tenure and the applicable interest rate. Afterwards, IIFL Finance’s business loan EMI calculator will let you know the total payable interest, total payment including the principal and interest amount and your monthly EMI.
IIFL Finance Business Loan Rates
IIFL Finance ensures that your finance needs are met promptly and that you can focus on business growth without worrying about day-to-day business expenses.
IIFL business loan is available at attractive rates and reasonable charges.
- Rate of Interest:
12.75% - 33.75% p.a.
- Loan Processing Charges:
2% - 4% + GST* ( Additional Upto ₹500 will be charged as Convenience Fees)
- Cheque / ACH Return Charges:
₹500/ + GST* per instance
- Cheque / ACH Swapping Charges Duplicate No-dues Certificate:
₹500/ + GST* per instance
- Duplicate Statement / Amortization / Repayment Schedule/ Agreement/ Sanction Letter
₹200/ + GST* per instance
- Penal Interest
24% per annum
- Prepayment / Foreclosure (01-06 months of EMI Repayment):
7% + GST*
- Prepayment / Foreclosure (07-24 months of EMI Repayment):
5% + GST*
- Prepayment / Foreclosure (more than 24 months of EMI Repayment)
4% + GST*
- Loan Cancellation
Interest will be charged for the interim period between date of disbursement and date of loan cancellation
- Any other charges from case to case basis
At actuals
Tips to Avail Business Loans at Low Interest Rates
Every entrepreneur who wants to start a business, such as an MSME, wants to avail of a business loan at the lowest interest rate a lender has to offer. However, numerous factors can affect the MSME interest rate, some of which can be managed to lower the interest rate. Here are some tips to lower the business loan rates:
-
Maintain a good credit score, preferably above 750 out of 900.
-
Try not to default on any interest payments to maintain a good credit history.
-
Ensure that you have a consistent source of income with a financial blueprint.
-
Avail of a business loan only from a reputed and experienced financial entity.
-
Use online tools and calculators to ensure the interest rate is affordable.
Factors that affect Business Loan Interest Rates
Business loan interest rates differ from lender to lender and borrower to borrower. The fluctuations in the interest rate occur due to various personal and external factors that can affect the borrower and the capital-raising capability. Here are some of the main factors that can affect the interest rates on a business loan:
-
Nature of Business: As a business loan funds the activities and operations of the business, the nature of the business affects the commercial loan interest rates. Every lender classifies the business loan based on priority and non-priority sectors.
Priority sectors contribute highly to the GDP but face challenges in obtaining a business loan. Non-priority sectors are those which are always ready to lend credit. Loans that fall under the priority sector have a lower interest rate than loans associated with the non-priority sector. -
Business Existence: Every business goes through ups and downs, and lenders analyse a business based on its sustenance. The longer your business has been operating, the lower the interest rate offered by the lender. However, a business must exist for a minimum of two years.
-
Business Turnover: Similar to lenders analysing your monthly income before offering a personal loan, lenders analyse the business turnover to determine the loan repayment capacity of your business.
If your business is consistent and profitable, there is a high possibility that the business loan interest rate will be lower than for a business making constant losses. -
Credit Score: A credit score determines your creditworthiness and provides a way for the lender to ascertain your ability to repay the business loan. If you have taken any type of loan in the past and repaid the interest and the principal amount without defaulting, you will have a good credit score. A good credit score (700 and above) is a key factor affecting business loan interest rates. The higher the credit score, the better your chances of loan approval.
Business Loan Interest Rate FAQs
IIFL Business Loan Interest Rate Insights
Owning a business can be stressful when you are c…
Micro, Small, and Medium Enterprises (MSMEs) play…