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This is because the final interest rate varies depending on a lot of factors. Generally, the interest rate of business loan or any other loan for that matter would be calculated after the risk assessment of a particular applicant. The risk assessment helps the lender determines the probabilities of the borrower turning into an NPA, and further calculate the interest rate. 

Now, you must curious to find out the factors that affect the interest rate of a business loan. Read on to find out. 

1. Credit Score: CIBIL score and the repayment history of the loan applicant or the business applying for a loan plays the first and the most crucial part in determining the applicable interest rate. As a general rule, a higher CIBIL score leads to a lower interest rate and vice versa. 

2. The eligibility to value ratio: The eligibility-to-value ratio or the ratio of how much a business is eligible to borrow as per their creditworthiness to what they finally acquire; is the second most essential factor which plays a crucial role in determining the interest rate. Also, the actual amount you borrow has a lot to do with the interest rate at which the loan will be offered, especially if the same is unsecured.  

3. The repayment tenor: The repayment tenor chosen for a particular loan decides the amount of risk, which further influences the interest rate calculation.   

Bottom line: Some institutions provide the opportunity to avail collateral-free business loan to startup companies and small/medium business enterprises. You can approach either one of them to avail the required funds.

Read Also: The Factors That Determine Business Loan Interest Rates in India?