A business is always in need of extra funds to go the extra mile. It is especially true in the case of small businesses. A business loan is an excellent tool to get funding for business-related activities. The main obstacle which a company faces while planning to avail a business loan in India is its higher interest rates.
Every borrower would like to get a business loan at lower rates of interest because higher interest makes a dent in the profit margin of the business.
Business loan at a lower interest rate
A lender generally charges a higher interest rate when they are unsure of your ability to make timely repayments of the loan. Higher interest compensates the high risk the lender takes on by offering you the funds. If you want a business loan at a lower rate of interest, you must make the lender believe in your credibility and ability of loan payoff. You can do this in several ways. Some of them are as under:
- Show your company’s fiscal strength
Your company’s financial strength is an important weapon to cut interest rate to the minimum. A lender will evaluate the annual reports and financial records of the business to see the profitability. These records will also indicate your company’s past trends and current potential of profit-making, and the lender will also check your liabilities and outstanding dues. The business profitability and lower loan interest rates are directly proportional to each other.
- Improve your credit score
Your credit score is another major factor which affects the rate of interest. It is especially applicable in the case of small business loans because the lender considers it as a type of personal loan. Your credit history reflects your past pattern of debt repayment and the number of outstanding dues. Along with your credit score, the score of your business also matters a lot. It indicates how good your business is in repaying its creditors. If your credit score is not right, try to improve it by paying any outstanding dues and clearing the debts.
- Offer collateral
Collateral is security like an asset or share, mutual funds or bonds, which you can pledge to the lender against the loan. Your loan is now a secured one, and the lender would offer you a lower interest rate on your loan. You can negotiate loan terms with the lender if you are offering high-value collateral. The interest rate of business loans directly depends upon the type of collateral.
- Present a sound and viable business plan
It is essential if your business is a start-up or you are diversifying to other avenues. A sound business plan reflects your planning and strategies for business operation. It is a blueprint of future growth, profits and revenues. A viable plan can effectively convince the lender about your ability to repay the loan amount. Such a program is also helpful to negotiate your terms with the lender for the best deal.
- Choose a lender offering facility of Flexi Loan
Many NBFCs offer Flexi loan facility which allows you to withdraw only as much amount from your loan account as you need at the time. You have to pay interest only on the amount you have utilized daily and not on the entire loan amount. Depositing this amount back into the loan amount within 24 hours does not charge any interest. You also have an option to pay your interest amount in the form of EMI and can pay the principal amount at the end of the loan tenure.
You can avail a business loan at the lowest interest rate by following these tips mentioned above carefully.
