Running a business means dealing with ups and downs. The only formula to remember is that risk and reward are linked, and often one factor outweighs the other. Getting funds can be difficult for those with 3-4 years in business as it is the time when you start expanding the business, creating new projects, or acquiring new assets. In addition, competitive scenarios can also lead to working capital losses and low earnings. In this scenario, you can use a Business Loan to fund the company and its operations at a competitive Business Loan interest.
Business Loans are an indispensable tool in the modern era, as they can keep your business running smoothly even during a financial crisis.
There are two types of Business Loans; Secured Business Loans and Unsecured Business Loans. A secured Business Loan requires collateral to be provided to the financial institution, whereas an unsecured Business Loan is collateral-free.
In India, the Business Loan interest rates for both loan types, depending on several factors, such as credit history, business vintage, loan amount, repayment tenure, and other financial aspects. There are two interest rate models that are widely followed. These are fixed interest rates and floating interest rates.
1. Fixed interest rates
When the interest rate on a Business Loan remains the same during the complete loan tenure, it is referred to as a Fixed interest rate. After the borrower has paid one or more installments, they do not receive any reduction or increase in the value of the interest payable.
2. Floating interest rates
When the interest rate on a Business Loan fluctuates during the loan tenure according to the markets, it is called a Floating interest rate. In this case, the interest rate moves up and down as per economic conditions. These are usually good when you understand markets and the factors that affect the interest rate.
A CIBIL credit score defines the creditworthiness of a business. It is calculated by assessing your CIBIL score. A CIBIL score of more than 700 is considered a good CIBIL score. Improving your score means timely debt repayments, lower credit utilization, and no defaults.
When you pay your loan EMIs without default, you might receive better interest rates from your loan provider. If you have a good repayment history, loan providers feel confident in your credibility.
Loan approval often depends on factors such as the financial situation, upcoming projects, and turnover of the business. Profitable and prosperous businesses get easily. Keep a check on your financial statements, who knows you might get lucky with a lower Business Loan interest rate.
The age of your business can also help you get lower interest rates as it proves that your business is established and reliable, which positively boosts your chances of loan approval.
- Do not cancel existing/used credit cards or accounts.
- If you need a secured Business Loan, provide valuable collateral.
- Apply for a long-term Business Loan, not a short-term one.
- Apply for a loan from a renowned lending institution like Clix Capital.
- Use a Business Loan EMI Calculator before applying to calculate the EMIs and plan repayments accordingly.
- Business Growth – The backbone of any business is finance, ensuring that all technology, human resource, and marketing needs are met effectively. This will further help you grow your business on a larger scale. These require adequate working capital, and a Business Loan can help you achieve that freedom.
- Easy Availability – Digitisation has changed the way people borrow. Now, it has become much easier to obtain loans from various loan providers and NBFCs at attractive interest rates.
Young entrepreneurs prefer NBFCs over traditional loan providers as they have simpler rules and restrictions. A common element in all these pointers is demonstrating your credibility to the NBFC.