Every small business owner wanting to avail business loans looks for best business loan rates. Nevertheless, there are several factors that affect loan interest rates in India. Such as the creditworthiness of the borrower, amount availed, business turnover, and repayment capability. A small business loan can be availed from different lenders, ranging from NBFCs and banks to online lending companies.
That said, if the small business owner is looking for an unsecured business loan, he must apply for it with an NBFC or online lender. Both the type of lenders also offer loans at minimal documents and basic eligibility criteria. The borrower can also compare loans and use the loan eligibility calculator and EMI calculator to make a sound decision. Now, let’s take a look at the factors that determine the loan interest rate and can help you in availing loan at low rates.
CIBIL score is the numeric representation of the creditworthiness of the borrower. A high credit or CIBIL score shows that the borrower is credible to lend money. This depicts less risk and therefore, the lender is willing to offer loans at low interest rates. So, it is imperative that you should have a high CIBIL score.
If the score is below 650, you should look for factors that have led to this. The reasons behind this can be cheque or EMI bouncing, outstanding loan payments, or late credit card bill payments. Additionally, there are even some instances where wrong information is added in the credit report. You can look for these mistakes (if any) and get them rectified with TransUnion CIBIL.
Assuming that the loan application may not get approved in the first go itself, many borrowers apply for a loan with multiple lenders at the same time. Nevertheless, this is not a good practice and can severely impact the credit score. Applying for a loan with different lenders at the same time represents credit hungry behavior. So, you must apply for a loan with a single lender at a time. And to get the application approved in the first go itself, you must apply with the lender whose eligibility as well as other terms and conditions you completely meet.
To get the best business loan rates in India, choosing the lender wisely is very important. Here, you need to opt for the lender who offers the best loan rates in the market. Additionally, you are also required to understand that if you do not meet the eligibility criteria of the lender, the application will be rejected. So, it is recommended that you shortlist the lender who not only offers loans at low interest rates but also whose eligibility criteria you meet. It is also worth mentioning that CIBIL score is very important and borrowers with low CIBIL would still get loans at high rates.
Business vintage is the age of the business. How old the business is a crucial aspect and very important eligibility criterion for the lenders. If the business is old, say more than 2 years, it represents that the business is earning good revenues for its survival. Additionally, documents such as ITR, bank statement, PNL account, etc. that represent the business revenues and turnover can only be provided if the business is running for at least 2 years. So, the minimum business vintage asked by most lenders is 2 years.
Determining the loan repayment capacity is very important before applying for the business loan. If you apply for a loan amount that is more than your repayment capacity, then this will create doubts in the mind of the lender. This can lead to the application getting rejected. However, an amount less than your requirement will not serve the purpose completely. So, you should neither apply for a small loan amount nor for a high amount. In a nutshell, knowing repayment capacity is very important.
All these factors help in determining the creditworthiness of the borrower. And if he is credible, the lender will be willing to offer loans at the best loan rates since the risk is low. That said, you can consider these factors and see if you have a high CIBIL score and meet the eligibility criteria. If you do, you will get a loan at low rates and best terms and conditions.