A business loan is a life saver for all types of businesses: start-ups, SME, or MNC’s. A business loan helps you manage inventory, cash flow, and payment cycles.
Business loan interest rates depend on the amount of loan and the loan’s tenure. There are two types of interest rate models: diminishing and a flat rate of interests.
Diminishing rate of interest
The principal amount reduces as the borrower starts paying the installments of the loan. Therefore, it is only fair that the interest is applied only to the remaining principal amount and not the original borrowed amount. This technique of calculating interest is called diminishing rate of interest.
A flat rate of interest
Contrary to the diminishing rate of interest, a flat rate of interest is the technique of calculating the rate of interest on the initial loan amount. It does not consider the reduced value of the principal after the payment of one or more installments.
As seen above, it is very easy to understand why a diminishing rate of interest is more preferable.
Let us consider an example.
Suppose an organization borrows Rs. 1000000 for a tenure of three years. The interest rate on the loan is 10%.
The below table displays how both the interests will be calculated.
|Flat interest rate||Diminishing interest rate|
|Total amount payable||1300000||1161619|
From the table you can see that the diminishing interest rate is more beneficial to the borrower. However, in reality, the rate of interest on a diminishing rate model is set higher than a flat interest rate.
In addition to interest, lenders levy other charges like stamp duty, processing fee, bank guarantee, foreclosure charges, other statutory charges and letter of credit charges.
Therefore, ensure that you educate yourself about interest rates, payment options, tenure, and applicable charges before applying for a loan.
Lendingkart and business loan interest rate model
Lendingkart provides SME-business loans throughout India. It provides a flexible rate of interest and a document free process.
The benefits of taking a business loan from Lendingkart
There are several benefits offered by Lendingkart in comparison to banks providing similar loans.
Business Loan Interest Rate in India 2023:
|Rate of interest||1% to 2%|
|Tenure of the loan||Maximum up to 36 months|
|Amount of loan||Rs. 50,000 to 1 Crore|
|Processing charges||2 to 3% of the loan amount|
|Time to sanction a loan||Within 3 working days|
|Eligibility||>90000 turnover for a quarter|
*based on your business’s health and credit score
**Pre-closures are only allowed after the first EMI has been paid in full
We have a proprietary method of calculating interest rates which evaluates your loan application using advanced analytics. By enabling technical inputs and outputs we have made the process of calculating interest rates faster and more accurate. The attractive business loan interest rates are calculated by factoring in several things listed below and are different for every partner SME.
- Loan Amount: The amount that you apply for, pending approval, counts towards deciding the interest rate. Generally, the higher the amount of loan, higher the possibility of a lesser interest rate from Lendingkart.
- CIBIL Ranking: If your CIBIL score and history are good, the interest rate we charge will be lower and vice versa.
- Balance Sheet: If you are earning good margins, we will take that in consideration while deciding interest rates on your loan.
- Age of Business: For long running enterprises, we offer special discounted SME loan rates
Business Friendly Loan Approval and Pre-closure Charges
We do not believe in charging extraneous charges and fees from our customers. That’s why we have one of the friendliest pre-closure policies – there are no pre-closure charges. After paying the first EMI, you can prepay the full loan amount, anytime. Added with the benefit of attractive interest rates, it is a great way to finance any short term business requirement.
Also, we only charge 2% of the loan amount plus service tax as processing fee. It’s a one-time fee which you don’t have to pay if you choose to reapply for the same loan amount upon closing.
Minimum documentation and turnaround time
When applying for a business loan with Lendingkart, you have to submit only a handful of documents. And we process every loan application within 3 days of document verification.
Documents required by us are:
- Address proof (Aadhar Card, Voter ID, Bank Statement, Proof of registration, etc.)
- Identity Proof (Passport, Aadhar Card, Driving Licence, PAN, etc.)
- Proof of Business (PAN, GST Registration, Trade License, Registration Certificate issued by RBI or SEBI).
- Copy of PAN card and Income Tax Returns for last 24 months.
- Bank Statement of last 12 months.
Know More Read: Business Loan Eligibility and Documents
Easily Calculate Your EMIs:
We offer a business loan EMI calculator which you can use to get an idea of EMI amounts you will be paying. The EMI is calculated based on the Lendingkart interest rate offered to you, the loan amount and tenure. For example, the EMI payable for a one lakh rupee loan, taken for 12-months at 18% interest per annum, will be Rs. 9,168. In similar scenario, if the interest rate is 27% p.a., then the EMI will be Rs. 9,602.
Needless to say, the higher the amount of your loan, the higher the amount of your EMI. The EMI calculator also helps you in budgeting and adjusting your finances to meet your EMI payment schedules.
Business Loan Interest Rate FAQs:
1.What factors decide the business loan’s rate of interest?
- 1. History of the company: The operation period of a company affects the approval of a business loan and its interest rate. The longer the company has been in operation higher are its chances of obtaining a loan and competitive interest rates.
- 2. Credit Score: If an organization’s credit score is good, then its chances of procuring business loans and better rate of interest increases.
- 3. Collateral: In addition to eligibility, sometimes collateral is necessary to acquire a loan. The higher the collateral, better are the chance of getting a business loan and lower are the interest rates.
- 4. Sufficient cash flow: Other than the profitability of the organization, the lender will look for consistent monthly turnover. An efficient organization will have predictable profits and performance over a long period of time. This affects the interest rates of a business loan.
2.How easy is it to get a business loan?
- 1. The reason why you need the loan and see if you are eligible for the same
- 2. Choose the business loan that fits your needs
- 3. Find the best lender depending on factors like tenure of the loan, interest rate, and applicable charges
- 4. Check your eligibility. If not, check what is required to be eligible
- 5. Ready the necessary documents and apply for the loan
3.Why Lendingkart is the best option loan?
- 1. Lendingkart provides customized business loans for medium and small businesses.
- 2. The loan application process cut through the unnecessary bureaucratic red tape.
- 3. We have an easy to navigate interface, making the application process simple and efficient.
- 4. We provide business loan in the range of 50000 to 2 crores. The wider window allows increased chances of approval.
- 5. We provide business loans faster than the 59-minute business loan scheme. The entire process is online and a loan can be approved within 3 working days.
- 6. We provide unsecured business loans. In other words, we do not require a collateral to give you a loan.
- 7. We employ machine learning tools and big data to determine the best interests in business loans. Therefore, ensuring that you get fair interest rates on your business loan.
- 8. We provide a tenure of 12–36 months. In case you require more, we do provide a buffer of 6 months as well.
- 9. No hidden charges. Our entire loan application process is transparent
- 10. Lastly, we provide flexible repayment option. Lendingkart allows you to make monthly and bi-weekly repayments. You can pace your repayment as per your conditions.