Understanding the average business loan interest rates is crucial when financing your business in India. Whether considering a secured business loan, using a business loan eligibility calculator, or exploring unsecured business loan options, knowing what to expect regarding interest rates can help you make informed decisions and secure the best possible terms.

Understanding Business Loan

A business loan is a financial product designed to help businesses in India secure the necessary funds to grow, expand, or manage operational costs. Banks and other financial institutions, as well as non-banking financial companies (NBFCs), provide these loans. Business loans can be used for various purposes, including purchasing equipment, expanding operations, managing cash flow, or meeting other business-related expenses.

Common Uses of Business Loans

• Working Capital: Managing daily operations and cash flow.
• Equipment Financing: Purchasing or leasing new machinery and equipment.
• Expansion: Opening new branches, scaling operations, or entering new markets.
• Inventory Purchase: Buying inventory in bulk to meet demand.
• Debt Consolidation: Refinancing existing debt to manage repayments better.

Types of Business Loans

Secured Business Loans

Secured business loans, a trusted financing option for small businesses, require borrowers to provide a personal guarantee or pledge assets/property as collateral. This collateral assures the lender of the borrower’s commitment to repay the loan within the agreed-upon tenure.

In the event of a default, the lender has the right to seize the collateral. Due to their secured nature, secured loans often have longer repayment terms than unsecured loans and typically feature slightly lower interest rates.

Unsecured Business Loans

An Unsecured Business Loan is a type of financing obtained from a lender for business purposes without needing to pledge any collateral. Repayment is typically made through Equated Monthly Instalments (EMIs). To approve these loans without collateral, lenders evaluate your repayment ability by reviewing your credit history and income.

These loans can be used for various purposes, such as starting a new business, expanding operations, upgrading machinery, funding working capital, or renovating business premises. Micro, small, and medium enterprises (MSMEs) particularly benefit from such loans, as they often lack property to offer as collateral.

Secured Business Loan Types

Secured by Collateral 

Secured business loans require pledging assets owned by the business, such as:

• Property Mortgages
• Government Securities, Fixed Deposits, and Savings Accounts
• Gold and Other Precious Metals

Secured by Personal Guarantee 

These loans are based on the business owner’s guarantee. The proprietor or partner can pledge personal assets like property, land, or gold with limited or unlimited liability.

Unsecured Business Loan Types

Several credit instruments do not require collateral:

• Term Business Loan: High-value loans available without collateral or a guarantor, with repayment terms of up to four years, suitable for various business needs.
• Overdraft (OD) Facility: Allows borrowing against a business account like a Current Account, with interest charged only on the utilised amount.
• Loan on Business Credit Card: Pre-approved loans based on credit card transactions and payments, with funds often available within hours.
• Government-backed Schemes: Programs like Pradhan Mantri MUDRA Yojana (PMMY), Stand-up India, and Credit Guarantee Schemes (CGS) support MSMEs.
• Consumer Loans: These loans include buy-now-pay-later schemes for purchasing business equipment like computers, printers, and security systems.

Business Loan Interest Rates

Business loan interest rates from banks and non-banking financial companies (NBFCs) generally start at 9% per year. These rates depend on various factors, including the applicant’s credit score, the nature of the business, business income, and the type of collateral/security provided. Since interest rates can vary between lenders, applicants must compare rates from multiple lenders before applying for a business loan.

Final Word

Understanding the average business loan interest rates for secured and unsecured options is vital for making the best financial decisions for your business in India. Using tools like a business loan eligibility calculator, you can better prepare for the application process and secure favourable loan terms. Whether opting for a lower-rate secured loan or a more flexible unsecured loan, knowing what to expect can help you confidently navigate the lending landscape.

Exploring your options and understanding the associated costs can empower your business to grow and thrive without unnecessary financial strain. Always compare multiple-lender offers to find the best rates and terms that suit your business needs.