Business loan interest rates in India

Business loans are a major source of finance for small business persons, entrepreneurs, and business corporations in India. Business loans help businesses grow, expand, and operate their daily business. The rate of return offered by the provider is the basis of the cost of borrowing, the type of lender, market conditions, and whether a borrower has a good credit score.

In this article, we will cover business loans interest rate in India, the most suitable loan facilities for Micro, Small, and Medium Enterprises (MSMEs), and points to consider before taking a business loan.

Also read: Essential Documents Needed for a Successful Business Loan Application

The Interest Rate of Business Loans in India

The interest rate of business loans in India varies based on whether the loan is availed from a bank, a non-banking financial corporation (NBFC), or Online & any other financial institution.

1. Bank Loans

• Public sector and private sector banks offer business loans with an interest rate between 8% and 16% per year.
• The rates of interest change depending on the borrower’s financial position, business profile, and credit history.
• Banks give both secured and unsecured loans but at lower interest rates for secured loans.

2. NBFC Loans

• NBFCs provide business loan at marginally higher interest rates, typically between 10% and 24% per annum.
• They have lower eligibility standards than banks, which makes them an ideal choice for low-credit score businesses.
• The approval is typically quicker than regular banks.

3. Government-Backed Loans

There are several schemes provided by the Indian government to help businesses, particularly MSMEs. The loans are typically offered at a lower interest rate and with easier repayment terms.

• Some of the most popular government-backed loan schemes are:

           – MUDRA Loan (interest rate from 7.30%)

           – Stand-Up India Scheme (interest rate approximately 8.85% to 9.95%)

           – Credit Guarantee Fund Scheme for MSMEs (interest rate of 8% to 14%)

4. Online Lending Platforms

• Fintech companies and digital lending platforms offer low-interest business loans of 12% to 30% interest per annum for short-term business loans.
• The entire process is web-based, with minimal paperwork and instant disbursal of the funds.

Also read: Practical Way To Convert Digital Credits

Best Business Loan Solutions for MSMEs

MSMEs are the support pillars of India’s economy. MSMEs might require money to expand their business, purchase machines, or cover expenses. Below are some good business loan solutions for MSMEs:

1. MUDRA Loan

The Pradhan Mantri MUDRA Yojana (PMMY), is designed to fund micro and small enterprises and is categorized into three segments based on loan size:

• Shishu Loan – ₹50,000 or less
• Kishore Loan – ₹50,000 to ₹5 lakhs
• Tarun Loan – ₹5 lakhs to ₹10 lakhs
• The interest rates start at 7.30% per annum

2. CGTMSE Scheme

• Avails collateral-free loans to MSMEs
• Provided by banks and NBFCs
• The interest rate varies between 8% and 14% per annum

3. Stand-Up India Scheme

• For the encouragement of entrepreneurship among SC/ST and women entrepreneurs
• Provides loans of Rs. 10 lakhs to Rs. 1 crore
• Interest rate begins from 8.85% per annum

4. SIDBI Loans

• Small Industries Development Bank of India (SIDBI) finances MSMEs.
• Provides various schemes like SMILE (SIDBI Make in India Soft Loan Fund for MSMEs) and SIDBI Revolving Fund for Technology Innovation.
• Interest varies by the scheme but generally ranges between 8% to 12% per annum.

5. Bank and NBFC Business Loans

• Interest rates vary based on factors such as credit score, business turnover, and business financial stability
• Loans may be secured or unsecured
  

Also read: Common Challenges in Mortgage Underwriting and How to Overcome Them

Conclusion

Choosing the right business loan with an acceptable interest rate is critical for the success of any enterprise. Having various channels available to them, from banks, NBFCs, and government-sponsored schemes to online lenders, businesses can approach financial assistance through various means. MSMEs also have access to special government schemes like MUDRA, CGTMSE, Stand-Up India, etc.

NBFCs assume a key function in the enhancement of access to credit, especially for those business enterprises that cannot fulfill the tight eligibility conditions of conventional banks. With negotiable terms, instant processing, and creative financial solutions, NBFCs are now the most preferred option for MSMEs applying for business loans. With an expanding economy, NBFCs are developing competitive lending solutions for fueling business growth across the country.

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