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    Table of Contents

    What is the interest rate of a business loan? As a business owner, if you have at any point tried to avail a business loan from a bank or NBFC, this is probably at the top of your mind. Though the business loan interest rate in India is governed by guidelines set by the RBI, there are additional charges and fees that individual banks apply as a result of which there are slight variations between lender rates.

    Business Loans

    There are several factors that come into play when banks/NBFCs offer business loans. Common factors include the loan amount, loan tenure (long-term business loan or short-term business loan), nature of collateral offered, business vintage, business profitability, type of business loan among others.

    On that note, let us take a look at the different bank business loan interest rate to enable you to choose the right lender for your business loan requirements.

    Business loan interest rate of public sector banks

    Let us start by taking a look at the business loan interest rate of all banks. We’ll start with the public sector bank loan interest rates, i.e., banks with over 50% stocks and shares held by the government.

    Currently there are 12 public sector banks in India. In general, public sector banks offer business loan low interest rate as compared to other lenders. The business loan eligibility, documentation, and loan sanctioning period however is longer.

    Listed below are the small business loan interest rates as of April 2023 offered by some them:

    Name of public sector bank Interest rate offered – April 2023 Other details
    SBI business loan interest rate

    (State Bank of India)

    • Margin % – 10%
    • Ensured through stock/receivable statement
    • Simplified Small Business Loan
    • Working capital loan
    • Amount – ₹10-25 lakh
    • Collateral – Min 40% in the form of exclusive mortgage charge
    • Unified charges – ₹7,500 + taxes
    Bank of Baroda (BOB) business loan interest rate Up to BRLLR + SP + 2.70%
    • MSME loan interest rates
    • Amount – up to 25 lakh (regulatory)
    • Tenure – 3-10 years
    Canara bank business loan interest rate
    • CRP over RLLR
    • 1.4% – 5.75% (low risk – high risk)
    PNB business loan interest rate (Punjab National Bank)
    • Margin – 15%-25% (based on asset financed)
    • RLLR + BSP + 0.20% to RLLR + BSP + 1.50%(based on collateral coverage)
    • MSME Prime Plus (existing business)
    • Working capital and Term loan (e.g., equipment, vehicle loan)
    • Amount – ₹10 lakh – ₹100 crore (exposure)
    • Tenure – 1 year + renewal (for working capital)
    • Tenure – up to 7 years (term loans)
    • Collateral – 30%-75% based on MSME segment
    Bank of India (BOI) business loan interest rate
    • Margin – 25% on stocks AND
    • 40% on books debts
    • Interest rate – As applicable

     

    • Star MSME GST Plus
    • Working capital requirements of trading/service
    • Valid GSTIN required
    • Amount – ₹10 lakh – 5 crore
    • Collateral – CCR of 65% (where CGTMSE not applicable)
    • Processing & other charges – Applicable
    Union bank business loan interest rate
    • Margin – 20% for WC loans

    OR

    • 25% for Term loan (plant and machinery)
    • 35% for Term loan (land and building)
    • Union MSME Suvidha
    • Working capital and Term loan
    • Amount – ₹10 lakh – ₹50 crore (OD – ₹5 crore)

    Note: These rates are as of April, 2023 (or as per bank updates). All borrowers are requested to check with the bank for the latest interest rates and applicable charges/fees/taxes. Govt. sector banks offer multiple forms of business loans and MSME loans. Borrowers are encouraged to check with the bank to find the best suited loan.

    Business loan interest rate of private banks

    As of April 2023, there are 21 private sector banks in India, i.e., banks where the majority of equity shares are owned by private companies or groups of individuals. Most of these banks offer different types of business loans such as working capital loans, commercial business loans, machinery loans, pre approved business loans etc.

    Listed below are the interest rates of small business loans by some of the top private banks in India:

    Name of private sector bank

    Interest rate offered – April 2023

    Other details

    HDFC bank business loan interest rate 10% – 22.5% p.a.
    • Amount – up to ₹50 lakh (collateral-free)
    • Processing fee – up to 2% of loan amount
    • Processing fee NIL for micro and small businesses for loans up to ₹5 lakh
    • Premature closure charges applicable
    ICICI bank business loan interest rate 10.45% – 17% p.a.
    • Processing fee – up to 2% of loan amount + taxes
    • Secured and unsecured loans
    • Overdraft facility
    • Merchant overdraft facility
    AXIS bank business loan interest rate 11.5% p.a. onwards
    • Amount – up to ₹50 lakh (collateral-free)
    • Tenure – 6 to 36 months
    IDFC First bank business loan interest rate 15% p.a. onwards (for self-employed)
    Bandhan Bank business loan interest rate 13.5% – 20% p.a.
    • Amount – up to ₹25 lakh
    • Tenure – up to 48 months
    • Professing fee – 2% of loan amount + taxes
    • EMI bounce charges applicable
    Kotak Mahindra Bank business loan interest rate 16% – 26% p.a.
    • Amount – up to ₹75 lakh (unsecured loans)
    • Tenure – up to 48 months
    • Processing fee – 2% of loan amount + GST

    Note: These rates are as of April, 2023. All borrowers are requested to check with the bank for the latest interest rates and applicable charges/fees/taxes.

    Business loan interest rate of NBFCs

    Apart from banks there are some notable NBFC and financial institutions that offer business loans. In general, the interest rates of financial institutions are higher than banks, though they have more lenient loan eligibility criteria and documentation process. They also offer a wide range of special loans, such as business loans for women entrepreneurs, loans for start-ups and new businesses,

    Listed below are some of the popular NBFC’s offering small business loans and their interest rates:

    Business Loan

    Name of financial institution

    Interest rate offered – April 2023

    Other details

    Bajaj Finance/Finserv business loan interest rate 9.75%-30% p.a.
    • Processing fee – up to 3.54% of loan amount
    • Other charges – Bounce charges, documentation charges, pre-payment charges
    Tata Capital business loan interest rate 19% onwards p.a.

    OR

    15%-25% p.a. for self-employed non-professionals

    OR

    13%-17.5% p.a. for self-employed professionals

    • Amount – up to ₹75 lakh
    • Processing fee – up to 2.5% of loan amount + GST
    • Dropline overdraft also available
    Lendingkart business loan interest rate 1% – 2% per month

    OR

    12%-27% p.a.

    • Collateral free loans
    • Tenure – up to 3 years
    • Amount – up to ₹1 crore
    • Processing fee – 2-3% of loan amount
    IIFL Finance business loan interest rate 11.25% – 33.75% p.a.
    • Collateral free loans
    • Tenure – up to 5 yrs
    • Amount – up to ₹30 lakh

    Note: These rates are as of April, 2023. All borrowers are requested to check with the lender for the latest interest rates and applicable charges/fees/taxes.

    It must be noted, that though most lenders prefer to take collateral against business loans from MSMEs, most business loans by default are unsecured loans or zero collateral loans. Since there is some risk involved for the lender, unsecured business loan interest rates are on the higher side.

    Business loan EMI calculator: Calculating EMIs on business loans

    As can be understood, different banks and NBFCs offer business loans at varying rates depending on multiple factors. As a borrower, before you approach a bank or NBFC for a business loan, let us understand how loan amount and repayment is calculated with the help of a business loan interest rate calculator.

    Business loan EMI calculation formula

    E = P x r x (1 + r) ^ n / [(1 + r) ^ n -1]

    E = EMI amount
    P = Principal amount borrowed
    r = Rate of interest on a monthly basis
    n = Duration of the loan

    Let us understand how the business loan interest rate is calculated for EMIs (equated monthly instalments). Consider this example:

    P = ₹25,00,000

    n = 36 months (3 years)

    r = 12% p.a.

    Based on the business loan EMI calculator formula:

    E = ₹84,235* (monthly EMIs to be paid)

    Total interest = ₹5,32,456

    Total amount payable (P + interest) = ₹30,32,456

    Note: You can check details of the repayment schedule with the lender to understand how business loan interest rates and EMIs operate. The interest is much higher in the first few months and gradually decreases over the years. Also, the more the tenure, the higher the total interest paid.

    Business loan EMI calculator example

    Principal loan amount

    Loan interest rate (% p.a.)

    Loan term (months)

    EMI amount

    Interest paid

    Total amount

     

     

     

    ₹10 lakh

     

     

     

    14% p.a.

    12 ₹89,787 ₹77,445 ₹10,77,445
    24 ₹48,013 ₹1,52,309 ₹11,52,309
    36 ₹34,178 ₹2,30,395 ₹12,30,395
    48 ₹27,326 ₹3,11,671 ₹13,11,671
    60 ₹23,268 ₹3,96,095 ₹13,96,095

     

    As you can see, even with a fixed business loan interest rate, there is significant difference in the EMI amount you pay, the total interest paid, and the final amount you pay to the bank/lender when you take a long term business loan. Moreover, there will also be other fee and charges (e.g.. processing fee, documentation charges, stamp duty, GST etc.) that will determine the final amount you will be repaying.

    Remember, there are repercussion of not paying EMIs in time. So, ensure that you only borrow a sum that you are confident to be able to repay. Also, negotiate the loan offer and identify pre-payment and forfeiture clauses to avoid running into difficult situations.

    Closing thoughts: Availing business loans on Tata nexarc

    There are different business loan options available for MSMEs and emerging businesses to start and grow a business. There are also government MSME loan schemes and business loans to enable easier access to finance.

    On Tata nexarc, we aim to make it convenient for MSMEs to access loans for their business. We have partnered with leading financial institutions to offer you loans up to ₹30 lakh with no collateral requirements.

    Some of the benefits and features of Business Loans through Tata nexarc are:

    • Unsecured business loans i.e., no collateral security required
    • Loan amount – up to ₹50 lakhs
    • Business loan interest rate – starting from 13% p.a.
    • Loan duration – up to 60 months (5 years)
    • Online process with minimum documentation
    • No audited financials required
    • Get a loan offer within 5 minutes
    • Multiple lenders in one place

     Note: This article is for information only. Interest rates, charges, fees subject to change at the discretion of the lender. All borrowers are requested to check with the bank for the latest interest rates and applicable charges/fees/taxes.