MSME Loan Interest Rate
If you're running a small business and seeking funds, understanding the MSME loan interest rate is crucial for selecting the right financing option. MSME loans are offered by banks and NBFCs to support Micro, Small, and Medium Enterprises in growing their business. The SME loan interest rate usually ranges from 8% to 25% per annum, depending on the lender, loan amount, credit score, and repayment capacity.
Some government-backed schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) also help reduce interest costs. It’s important to compare rates before applying, as even a small difference can affect your overall cost. Leading lenders like top banks and NFBCs offer competitive rates and flexible terms. So, whether you’re starting up or scaling up, check the latest rates and make a smart choice.
Factors Affecting MSME Loan Interest Rates
When applying for a business loan, it's crucial to understand the factors that influence the MSME loan interest rate.
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Credit Score: A good credit score can help you get a lower MSME loan interest rate, while a poor score may lead to higher interest rates.
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Loan Amount & Tenure: Larger loan amounts or longer repayment periods can influence the interest rate. Lenders may charge more based on the risk involved.
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Business Profile: The nature of your business, industry type, and overall financial health are considered when deciding the SME loan interest rate.
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Collateral Provided: Offering collateral can sometimes help in securing a lower interest rate, as it reduces the lender's risk.
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Lender's Policies: Interest rates can vary across banks and NBFCs, so it's wise to compare multiple offers before applying.
Calculation of MSME Loan Interest Rate
Understanding how the MSME loan interest rate is calculated can help you plan your finances better. Lenders typically determine the rate based on factors such as your credit score, business type, loan amount, and repayment term.
The base rate or MCLR (Marginal Cost of Funds based Lending Rate) set by the RBI is often the starting point. To that, banks add a spread based on your risk profile, which forms the final interest rate. For example, if the base rate is 8% and your risk spread is 4%, your interest rate becomes 12%. The SME loan interest rate can also be affected by whether you offer collateral or not. Calculating EMIs using online loan calculators can help estimate monthly payments.
Impact of Your Business Credit Score on MSME Loan Interest Rates
Your business credit score plays a major role in deciding the MSME loan interest rate you’ll be offered. Lenders use this score to assess how reliable you are with repayments. A high credit score (typically 750 or above) indicates that your business handles credit responsibly, which can result in lower interest rates.
On the other hand, if your score is low, banks may consider you a high-risk borrower and charge a higher SME loan interest rate or even reject your application. The score is influenced by your past repayment history, credit utilization, outstanding debts, and more. So, before applying for a loan, it’s smart to check and improve your credit score. Even a small improvement can make a big difference in how much interest you pay.