A business loan is a loan used to start or expand a business further. This is a type of an unsecured loan where you do not need to keep any collateral or asset with the lender. The rates of interest on such loans usually are pretty higher than any other types of loan. But, you should always try to reduce the business loan interest rates, so that your EMI amount and the total interest go down.
The factors that impact on the rate of interest on a business loan are:
Credit score- You must have a good credit score of above 750 to get a loan approval and to avail low interest rate. But if you have a low CIBIL score, you cannot negotiate the interest rate with the lender to decrease it.
Business stability- All businesses have four stages such as inception, growth, maturity and decline. The lender will review in which stage your business is right now. That will determine the rate of interest on your loan.
Profit margin- Lenders always prefer to give loans where debt to income ratio is higher. They will review your profitability before providing you’re a business loan.
Inflation- If the inflation is high, the prices of the products and services will increase but the purchasing power of the consumers will decrease. This indicates the value of money is decreased which will eventually increase the rate of interest of the loans.
There are other external factors that influence higher interest rate are monetary policy, demand and supply, economic uncertainty, etc. To know them in details, read:
What Determines Lowest Interest Rates on Business Loan?
Aman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management.