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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.
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) |
|
|
| Bank of Baroda (BOB) business loan interest rate | Up to BRLLR + SP + 2.70% |
|
| Canara bank business loan interest rate |
|
|
| PNB business loan interest rate (Punjab National Bank) |
|
|
| Bank of India (BOI) business loan interest rate |
|
|
| Union bank business loan interest rate |
OR
|
|
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. |
|
| ICICI bank business loan interest rate | 10.45% – 17% p.a. |
|
| AXIS bank business loan interest rate | 11.5% p.a. onwards |
|
| 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. |
|
| Kotak Mahindra Bank business loan interest rate | 16% – 26% p.a. |
|
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:
|
Name of financial institution |
Interest rate offered – April 2023 |
Other details |
| Bajaj Finance/Finserv business loan interest rate | 9.75%-30% p.a. |
|
| 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 |
|
| Lendingkart business loan interest rate | 1% – 2% per month
OR 12%-27% p.a. |
|
| IIFL Finance business loan interest rate | 11.25% – 33.75% p.a. |
|
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.
