Factors Affecting Unsecured Business loan Rates

Posted on 13 July, 2021 by Hero FinCorp

Whether you are a first-time borrower or an existing customer, interest rates are the important aspect that every borrower considers before applying for a loan. Every borrower desires to get a higher loan amount at a lower interest rate, but for a variety of reasons, you may not be unable to obtain a lower unsecured business loan rate. Today in this article, we have outlined the factors affecting unsecured business loan interest rates.

Factors affecting unsecured business loan rates:

Credit History:

The first and foremost aspect that a lender looks for a business owner is their creditworthiness. Whether you are a new business owner or an established businessman, you may require a loan at some stage of your business. In most cases, you may already have an existing loan. If you pay your EMI on time and have never defaulted on any of your prior or existing debts, your chances of acquiring affordable unsecured business loan rates are high.

Business Age:

Financial institutions usually consider the applicant who is into a continuous business for at least three years. Though the business age eligibility may vary with different lenders. When compared to newer businesses, a well-established business owner is more likely to acquire lower unsecured business loan rates. This is due to the fact that many financial institutions prefer to lend to SMEs with proven track records in the area.

Business Type:

The unsecured business loan rates are sometimes influenced by the type of business you choose. This is due to the fact that some business models are riskier than others. The interest rates imposed on your unsecured business loan may vary depending on the lender's assessment of the risk involved.

Also Read: Get An Instant Business Loan. Find Out How?

Business Financial Health:

The financial condition of a firm or a company plays a critical role in influencing the unsecured business loan rates. Businesses with strong financials are preferred by the lender for a loan disbursal since they can be relied on for debt repayment without any difficulty. When evaluating your profile, financial institutions assess the balance sheet, P&L statement, cash flows, and an ITR related to your business. If you have an attractive and low-risk business model with high profitability, your lender might disburse you an unsecured loan at a lower interest rate.

Business Plan:

Financial institutions ask for a structured business plan before disbursing the unsecured form of business loan. Though, if you are an established business owner, you need not require such a plan, as in most cases, this requirement is for new or start-up businesses. Your business strategy must be crisp and clear and should have an impact on the lender. It must clearly state how the borrowed funds will be used. However, if your plan is ineffective and shows no signs of growth, the financial institution may sanction your loan but will charge you with a higher interest rate.

To Conclude:

While you may be aware that different financial institutions provide unsecured business loans at varying rates, few individuals are aware that the same lender may offer varied interest rates to different loan applicants. Consider the above-mentioned factors for getting affordable unsecured business loan rates.