Your Guide for Interest Rates on Business Loans
Business loans are the lifeline to grow a business. With several business loans available in the market, there comes a very important consideration in the form of interest rates. For any business to avail a business loan from a lender, there are criteria that need to be taken care of.
Interest rates refer to the amount of interest that is payable on the money you borrow, lend, or deposit at the end of each period. Interest is the fee that a lender charges you for taking a chance with their money and lending it to you.
The total interest charged on a sum borrowed or deposited is determined principally by the interest rate, principal amount, and tenor for which it is borrowed or deposited.
What are interest rates, and how do they work?
Interest rates on business loans are determined by the monetary policy that is crafted by The Reserve Bank of India. Commercial banks take the lead from the policy and determine the rates accordingly.
Aside from the Repo Rate, other money market instruments such as the Cash Reserve Ratio (which refers to the amount of funds banks must keep with the RBI), the Reverse Repo Rate (which is the rate at which the RBI borrows funds from commercial banks), and others help to control the supply of money in the economy.
Interest rates are also affected by whether your loan is a secured loan or unsecured. Any unsecured loan is riskier to the lender because it has nothing to fall back on if you cannot return the obligation on time. As a result, unsecured loans typically have a higher rate of interest than secured loans.
There are two sorts of business loans:
- Unsecured Business Loan
- Secured Loan
Secured loans are those taken out against security held as collateral with the bank, whilst unsecured loans are those taken out without such security. Secured loans, on the other hand, have lower interest rates than unsecured loans.
In India, business loan interest rates start at a minimum of 15% per annum. However, it is determined by several elements, including credit score, business plan, loan amount, and repayment schedule, as well as other financial considerations.
There are two types of interest rate models:
Fixed Interest Rates
A fixed interest rate means that a borrower pays the same interest throughout the entire loan tenure. Business loan with a fixed interest rate come with a fixed EMI for the borrower. The loan payment is not affected by the market risk.
Floating Interest Rates
A floating interest rate means that a borrower pays the currently applicable interest rates(usually repo-linked) on the loan. Business loans with a floating interest rate come with an EMI that can keep changing through the loan tenure.
To obtain loans with fairly charged interest rates on business loans, check out the facilities provided by Oxyzo Financial Services.
