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Average Interest Rate on a Business Loan in India 2021

Posted on
Jul 17, 2021
Average Interest Rate on a Business Loan in India 2021

Starting your own business could be cumbersome if your finances are not well-planned. One of the ways to raise capital for your business is by taking SME Business loans from banks or NBFC (Non-Banking Financial Corporation) in India.

In India, the Average interest rate on a business loan is 16.6%. Since it usually ranges from 11.2% to 22%.

The interest rate for a business loan in India could vary depending on various other factors such as

  • Applicant’s Profile
  • Credit score
  • Required loan amount
  • Repayment tenure
  • Business plan
  • Business operational years
  • Annual profits

Business Loan Interest Rate Comparison

Choosing the right bank or NBFC to fund your business is paramount while curating your business plan. So, let’s plunge into the business loan interest rate comparison of various banks and NBFC in India.

BanksInterest rate per annum (%)Max Loan Amount (₹)Repayment Tenure (Months)
HDFC16% onwards75 lakhs6-48
AXIS15% onwards50 lakhs12-36
Kotak Mahindra Bank15% onwards75 lakhs6-48
ICICI18% onwards40 lakhs6-48
RBL Bank19% onwards20 lakhs12-36
IDFC First20% onwards75 lakhs12-60
SBI11.2% onwards100 lakhs12-48

NBFCInterest rate per annum (%) Max Loan Amount (₹)Repayment Tenure (Months)
Bajaj Finserv17% onwards50 Lakhs12-48
Fullerton Finance18% onwards100 Lakhs3-36
Lending Kart Finance18% onwards25 Lakhs12-36
Hero Fin Corp18% onwards50 Lakhs12-36
IIFL Finance18% onwards50 Lakhs12-36
Tata Capital Finance18% onwards30 Lakhs12-36
ZipLoan18% onwards50 Lakhs6-24
NeoGrowth Finance18% onwards75 Lakhs6-24
HDB Financial Service22% onwards30 Lakhs12-60

The above table indicates the interest rate per annum, Maximum loan amount, and repayment tenure of business loans of banks and NBFC. Business loan interest rate starts from 11.2 % onwards and could reach up to 22% depending upon your business profile and business requirements.

While finalizing a business loan in India, one must also keep an eye on charges levied by banks or NBFC apart from the business loan rate of interest and tenure of repayment.

Bank/NBFCProcessing FeeForeclosure Charges/ Pre-payment
SBI1% of the sanctioned limitVaries from loan-loan
HDFC BankUp to 2.50% of the loan amountUp to 4% of outstanding amount
Tata CapitalIt depends on the applicant’s profile and business requirementsForeclosure: 5% of Principal loan outstanding
Bajaj FinServUp to 2% of the loan amountPart-payment: 2% on the amount part-paid
RBL BankUp to 3% of the loan amountNo foreclosure permitted before repayment of 6 Emi’s
IDFC First BankUp to 3.5% of the loan amountForeclosure: 5% of Principal loan outstanding
Lending kart FinanceUp to 3% of the loan amountNil

The above comparisons will give you a holistic view of different banks and NBFC business loans that will enable you to make tangible decisions for selecting business loans that will be the right fit for you.

FlexiLoans provide an unsecured business loan up to 1 Crore with the lowest interest rate starting from 1% for the tenure of 36 months. FlexiLoans is the best option if you are planning for a business loan.

Which Factors Affect Business Loan Rate of interest?

1. Type of Business

The banks/NBFC generally bifurcates the business loan under “Priority Sector” and “Non-Priority Sector.” Business Loans that come under Non-Priority Sector have a higher interest rate than the priority sector loans. Therefore, the nature of your business determines your business loan rate of interest.

2. Business Operational Years

Long business operational years will give you brownie points while availing business loans. However, lenders kept the cap of 2 years of business operational period irrespective of the nature of your business. More business operational years would fetch you less interest rate on business loans.

3. Annual Turnover

The annual turnover of your business indicates whether your business is making profits or incurring losses. In a nutshell, it remains a crucial factor in determining your business loan eligibility. There might be times when the turnover is infrequent. However, having financial consistency is crucial, as it assists your lender in deciding the business loan interest rate, loan amount, and repayment terms.

4. Credit Score

A credit score indicates your financial credibility and is based upon your credit transactional history. It depends on timely repayment of EMI, credit card bills, and loan repayment – a good credit score will bestow you more benefits like lower business loan interest rates and flexible tenure or repayment terms. The credit score managed by TransUnion CIBIL is authentic and preferable by banks and NBFCs in India for business loans.

5. Collateral

You can get a business loan without collateral which acts as a substantial guarantee or security against your loan repayment to the lenders. The high value of the collateral would fetch you more benefits. High valuable collateral such as real estate, equipment, machinery, deposits, or home equity provides security to the bank. After examining the collateral, the bank might avail you of a higher loan amount with a low interest rate of business loans as the risk is low.

6. Lender Type

A business loan rate of interest may vary from one lender to another. If you closely compare business loan interest rates offered by banks and NBFCs, you will observe that banks levy lower interest rates than NBFCs.

How to Get a Low Interest Rate Business Loan in 2021?

  • Maintain the good financial health of your business.
  • Elevate your credit score and try to achieve 750.
  • Improve your credibility by timely paying bills, EMIs, and credit card payments.
  • Maintain an adequate source of income.
  • Have a strong relationship with the bank by opening an account and timely repayment of EMI.
  • Do not close any credit card or any bank account.

Different Types of Interest Rates on Business Loans

1. Diminishing or Reducing Balance Rate

The reducing balance rate is being calculated each month on the remaining loan amount. The EMI comprises interest payable for outstanding loan amount for every month along with the principal amount repayment. After every EMI payment, the outstanding amount of the loan gets reduced. Hence, the interest rate for the consequent month would be the calculation of interest applicable only on the outstanding amount.

2. Fixed Rate of Interest

Fixed interest rate is being calculated on full loan amount during its tenure. The interest is charged without considering the monthly EMIs that would slump the principal amount and the business loan rate of interest.

Smart Way to Use Your Business Loan Effectively

After procuring a business loan, it is crucial to spend that amount wisely and in such a way that will create assets for your business rather than a liability.

1. Recruitment of Smart People

Hiring smart and hard-working people will assist you and your business grow exponentially with time. Investing in human resources will fetch you the best investment return as they will help you solve critical business-related problems and hence save your business from substantial losses. Recruiting smart employees will also assist you in making decisive financial decisions for your business. For example, they would help you to choose the best yet low business loan rate of interest.

2. Website Upgradation

Having an interactive website would help your business to reach millions of people online. It will gravitate customers to your business purpose; consequently, your product/service would disseminate to an even larger audience in no less time.

3. Growth via Digital Marketing

Digital marketing is at the forefront in the 21st-century era. Investment in digital marketing will help your business regularly engage with customers and will also assist in building strong customer relationships. It will help you to get adequate feedback which will be valuable to build better products or services.

4. Software Upgradation

With the latest technologies, your business can strive for higher growth since better software or SaaS would increase your business productivity and efficiency. Investments in tech tools will also improve your product and service, which ultimately could serve a larger audience.

5. Better Office Space

Having a spacious and well-designed office would gravitate more clients towards your company and help your teamwork in a sound and professional environment.

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