An SME business loan is a financial product specially designed for the SMEs in India in order to help them in meeting their financial requirements. The SME and MSME loans in India are offered by various lenders. An SME business loan can be secured or unsecured in nature. A secured SME loan is offered with collateral. And an unsecured SME loan is a loan for business without security.
You can avail different types of loans in India under SME loan, namely machinery loan, working capital loan, term loan, flexi loan, and capital loan. Every lender has different eligibility criteria, document requirement, and interest rate. While the eligibility and documents always remain unchanged for every borrower, the interest rates offered can be different for every borrower, subject to a few factors.
Every business owner wants to avail a secured or unsecured business loan at the lowest interest rate in India. Let’s take a look at the factors that can help you avail an SME business loan at the lowest interest rate:
also read: how to improve for a small business loan?
A CIBIL score is the numerical representation of the financial behavior and creditworthiness of an individual. It lies between 300 and 900. The higher the CIBIL score is, the more credible the individual is. The loan lenders usually offer SME loan to business owners who have a high credit score.
So, a high CIBIL score lowers down the risk factor for the loan lenders in India. Therefore, the SME business loan lenders offer loans at lower interest rates with high credit score. You too can work towards improving the credit score if it is not in the desired threshold for the low interest rates in India.
If you have paid your previous debts on time or not is another factor which is considered by every business loan lender in India. Also, how often you apply for small business loans. It is called the debt-to-income ratio. If your debt-to-income ratio is high, this represents that you live on loans. That you have so many running loans on your name and they fulfill your financial needs.
The debt-to-income ratio is calculated by dividing the sum of all the monthly debt by your monthly before-tax income. In addition, if the DTI is high, this means all your salary is spent on repaying the loan EMIs for small business. In the end, it will be question mark on how you will repay this SME business loan.
Every lender has different loan eligibility and document requirement. And now since every lender has different eligibility criteria, they have different interest rates as well. It is then important to check finance companies’ terms and interest rates. So, it is important to shop around and search for the SME business loan lender who offers the best business loan interest rate.
You can also look for lender that offers loans at basic eligibility criteria and minimal documentation. Online loan application and fast processing are the other two major factors that you must consider while choosing the loan lender. One more factor that you are advised to consider is the time taken by the lender to disburse the loan amount.
The loan term is also one factor that affects the business loan interest rate. The longer the term of the SME business loan, the higher the interest cost will be. However, it must be kept in mind that a short loan repayment term can lead to costly EMIs. So, the loan repayment tenure must be chosen carefully.
To choose the best repayment tenure, you can take the help of business loan EMI calculator. It will help in calculating the amount of EMI to be paid in said repayment tenure.
Negotiation is the key to best interest rates for a loan for the business. You can negotiate with the business financing company for the lowest interest rates. However, as said earlier, you would only be in this position if you have a good credit score. A CIBIL score of more than 750 is said to be the best score.
With the advent of technology in the financial sector, you can apply for SME and MSME loan online. However, before applying for an SME business loan, you must check business loan eligibility. Also, check your loan amount requirement before applying for a loan for the business. An amount more than your requirement would be of no use and will cost you extra interest amount.
ZipLoan is an RBI registered NBFC that offers SME loans at the best interest rates in the market. We require minimal documents for a loan for business and offer loans at basic eligibility criteria. You can apply for a loan online on our website and also upload their documents online.