5 Important Factors that Affect Your Business Loan Interest Rate


Business loan interest rate is one of the most vital factors when the borrower first decides about availing a business loan. While the interest rates differ from one lender to another, there are a few factors as well that can impact business loan interest rate.

There arises a need that one must consider before applying for a business loan. If all these factors are in your business interest, you can always compare which lender offers the most competitive interest rates.

Go on to read which those factors that can help you to lower down the interest rate.


CIBIL or credit score represents the creditability of the borrower. So, the borrowers who have a higher credit score are more credible as compared to the ones who have low CIBIL score. Nevertheless, no lender wants to risk their money. And as a result, the loan lenders offer low-interest rates to borrowers with a high credit score. And borrowers with lower CIBIL are granted business loans at high-interest rates. Also, the chances of getting a business loan are higher for the borrowers whose CIBIL score is higher.

Type of Business

Many times, the type of business also affects business loan interest rates. This is because some of the businesses carry a higher risk as compared to others. Considering the lender’s perception on the level or the degree of the risk involved the interest rates charged on your business loan might differ. Also, it is recommended to produce or curate a strong business plan to provide to the lender. This usually increases the chance of getting a business loan in India.

Type of Lender

The business loan interest rates mainly depend on the type of the lender you are availing a business loan from. When said about the different lender, meaning the traditional lenders and modern lenders. You need to analyse the type of lender that offer business loans at different yet competitive interest rates, NBFCs, online lenders, banks, etc. all are included while considering.


Collateral is the security that is required by most of the lenders to secure business loans. Collateral is the asset that can be any equipment, property, machinery, inventory, or anything having some monetary value that is been owned by the business owner. Some of the businessmen are willing to offer collateral; while some are not really in a position to offer it.

It is also something that affects the business loan interest rate. However, there are financial institutions who offer collateral-free business loans at low-interest rates. Also, MSMEs do not have collateral security to give in exchange for the credit. Considering this, the Government of India has come up with a couple of MSME loan schemes to provide help to the MSMEs without any collateral.

Financial Health

Lenders also consider financial health factors such as or business tenure which means how long the business owner is into the same business. Lenders also determine the financial health which is possible through the balance sheet, cash flow statement, profit & loss account, etc. All of these factors together help in analyzing the business loan interest rate.

Frequently Asked Questions

How to apply for an MSME loan?

To apply for an MSME loan: One must fill up the online loan application form and submit all the relevant documents to complete the procedure. Once done, the borrower gets all the funds in bank account within three days*.

Who can all avail an MSME loan?

Business entities and self-employed professionals can avail an MSME loan.

What are the 3 main factors that affect interest rates?

Credit score, loan term and loan type affect the interest rates.

How to qualify for a business loan?

The applicant looking to avail a business loan can qualify for it by meeting the following criterion:

1. Minimum 3 years of business tenure
2. Applicant’s age should be within 25 to 65 years
3. ITR filed for at least of last two years
4. And a healthy CIBIL score

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