"Silence is a fence around wisdom. "
- German Proverb
Would you believe if you are told that different banks may offer different interest rates to different owners?
Surprised? You should be!
Most people and business owners do not know this fact, but, it is to be noted that there are a number of factors that affect the interest rates of business loans. Following are the factors that define the interest rates of the chosen loan amount and scheme for your business:
Like the experience of your work profile matters while you are trying to take a leap in your career, your experience in business matters while you are looking forward to setting up some new venture or expanding the current business. Today, fulfilling the start-up business loan requirements is not a big deal for the banks. But, it may come as a surprise to you that the interest rates for start-up business loans are higher for newbies than that for the experienced ones. On the other hand, if you have been in business for a considerably longer time, then that’s an added benefit for you.
Type of Business
Every business is different from every other business in the market. With respect to the standard definition of risky businesses, some businesses are risk-prone while some aren’t. Some businesses rely more on trust and hence have only a few things that can be explained to the loan lender or the bank. A few may also have longer tenure of business. In such cases, the interest rate on the loan amount may vary at the higher side.
The annual income of small business defines the average earning capacity of that business. The banks and lenders usually do financial statement analysis by going through the revenue details of your business for a few consecutive years. Based on the same, the estimated revenue of small business is drawn. This states the interest rate for the business loan that the owner wishes to choose. In a nutshell, interest rates offered to you highly depend upon on financial health of small business.
The better you know your goals the better the business plan will be. And, better the business plan, lesser will be the interest rates on business loans. If the bank or the lender is convinced that your start-up idea has high business potential and that you are a wise spender, your life is going to be easy.
It is regarded as an eligibility criterion for acquiring business loans in India. If the business owner has a credit score above 700, there is a higher chance the loan application will get approved. However small business loans with bad credit history tend to pay more in the form of higher interest rates.
Collateral free business loans for start-ups have gained a lot of popularity in recent times. But, the borrowers must understand that, start-up business loans are usually secured loans. So, if the borrower presents more collateral, the banks obviously have low risk in the deal and hence offer them lesser interest rates.
Remember, there are different types of business loans offered by banks, but never miss checking with the factors listed above before you apply for any loans for businesses.