Business Loan Fees and Charges

Banks and NBFCs offer business loans with interest rates starting at 16% p.a. for loans up to Rs2 crore that can be repaid over a maximum of 5 years. For the unsecured business loans made available by the financial institutions, the borrowers are not obliged to provide any security or collateral.

How to obtain low-interest business loans?

The applicant should take into account the following factors in order to obtain business loans at relatively low-interest rates:

• Boost your credit score and keep it above 750 on a scale of 900.
• Keep a stable financial situation and a solid history of loan repayments.
• Paying bills, loan EMIs, and credit card payments on time will increase your creditworthiness.
• Keep a respectable source of income.
• Request a long-term loan rather than a short-term one.
• Establish a connection with the bank and open an account.
• Do not close your previous bank or credit card accounts.
• Request a loan from a reputable commercial or public sector bank.
• You may have to provide valuable security or collateral for a secured company loan.

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Rates and charges

Here is a list of various direct and indirect charges you may encounter while applying for a business loan:

• Interest rate: An interest rate reveals how much borrowing will cost you.
• Processing fees: While processing and approving your loan, the bank must pay some administrative expenses which it extracts by charging a processing fee.
• Bounce charges: If a check bounces, the borrower is late with a deposit, and the EMI payments are postponed. The bank may levy bounce charges in such cases.
• Document processing charges: The fee a lender takes to process your documents.
• Penal interest: The borrower will be charged interest on the delayed instalments, also known as penal interest if they are not received by the end of the month per the repayment terms.
• Part-prepayment charges: If you have extra cash and wish to use it to pay off your loan early, you can choose a portion pre-payment facility and pay off your debts earlier than expected. You may have to pay a charge for this.
• Stamp duty: It is a charge which the government charges that varies from state to state.
• Annual maintenance charges: A small annual fee known as an Annual Maintenance Fee (AMC) is required to maintain the functionality of your Flexi Loan account and give you access to extra services including withdrawal and part-prepayment of money in accordance with your preferences.
• Foreclosure charges: The lender may charge a prepayment penalty, also known as foreclosure charges if you intend to return the loan before the loan term has expired.

Other factors that affect the interest rates of a business loan

These are the variables that determine business loan interest rate:

• The nature of business: Typically, the lender divides the loan into priority and non-priority sectors. In comparison to loans for the priority sector, businesses classified in a non-priority sector have a higher rate of interest. The interest rate on your business loan is thus determined by the kind and type of your firm.
• Business Age: The more time your company has been around, the better it is for you. Nonetheless, regardless of the type of business, a minimum of one year of operation is required. You stand a better chance of obtaining loans with lower interest rates if your business has been operating for more years.
• Turnover and profitability: Your company’s annual business turnover determines whether it is profitable or losing money. In other words, it still plays a big role in evaluating whether you qualify for a company loan. The turnover can fluctuate from time to time. But, being consistent is quite important because it aids your lender in determining the loan amount and repayment schedule. Consistent firm profitability also facilitates obtaining a loan with a relatively cheap interest rate.
• Credit Rating: Your credit score, which is based on your credit history, assesses your creditworthiness. You will have an excellent credit score if you have previously taken out a loan and repaid it on time or if you pay your credit card bills on time. Also, having a high credit score (750 or higher) will benefit you when applying for a loan. Many advantages, including reduced lending rates and variable tenure or payback options, come with an excellent credit score.
• Type of Lender: The interest rates for business loans vary depending on the lender. However, if you compare the interest rates on business loans provided by banks and NBFCs, you will typically find that private and public sector banks provide loans at rates that are lower than those provided to non-banking financial companies (NBFCs), small finance banks, microfinance institutions (MFIs), and other types of financial institutions.

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