Important Points to Know about SME Loan Interest Rates

Posted by Rupeek Fintech Pvt Ltd. on May 20th, 2021

While budding entrepreneurs get ample opportunity to develop their business ideas, a glaring lack of infrastructure and financial assistance make it difficult for small businesses to flourish. Even though recent market statistics state, the Indian SME sector contributed nearly 22% to the Indian economy, a lack of resources to support new ventures remained a constant issue for business owners. 

In some cases, it was challenging meeting the eligibility norms. Immoderate interest rates were another reason why it’s often not as accessible or feasible to small and medium-scale enterprises. SME loan interest rates vary across different lenders, and these are primarily based on some specific factors.

Aspects that Affect Interest Rates on SME Loans

Depending on a borrower’s repayment capacity and additional factors, financial institutions determine the interest rates on your business loan. Following are the factors that influence these rates:

• Credit Score: The interest rate at which you service a loan rides a lot on your credit score. A poor CIBIL score can either lead to rejection or exorbitant interest rates, especially in the case of SME loan without collateral. Conversely, a healthy credit score attracts lower interest rates.
• Business Vintage: No matter whether you are running a small business or a large-scale enterprise, its vintage plays a vital factor. On the basis of how long you are running the business, its stability, and profitability, lenders determine the interest rate. Having a stable business inevitably makes it easier for you to obtain a loan at lower rates as there’s a lower risk of non-repayment.
• Annual Turnover: Since it falls under basic eligibility parameters, lenders look for a steady turnover and decent profits from your business before sanctioning the SME loan. In case your business is running in losses, fair are the chances of getting higher interest rates or loan rejection from the lender.

However, this particular inconvenience can be easily avoided by going for secured financing options like gold loans. Borrowers can search by ‘Rupeek branch near me’ to get instant doorstep service without hassle.

Apart from these, your business type has a key role to play when the financial institution decides your SME loan interest rates. Lenders will evaluate all the aforementioned factors and conduct thorough research on your business before doing so. In case you fail to meet these basics, here is how you can expect moderate interest rates on your loan.

• Maintain Healthy Repayment Record: Interest rates are premised on a borrower’s perceived risk. A default-free repayment record presents you as a reliable, low-risk borrower. Thus, it automatically helps you take out a loan at lower interest rates.
• Consider Secured Loans: By choosing a secured loan variant like a gold loan, you can easily avoid the stringent eligibility criteria and excessive document requirements. Due to its secured nature, you can also get a loan at lower interest rates. Nonetheless, inquire about the gold loan online payment process before proceeding.

It is also advisable to check which type of interest rate your preferred lender offers between flat and reducing balance. By following these measures, business owners can quickly get moderate SME loan interest rates and make their EMIs affordable.