Know about the Finance and Investments Terms

These can never be known with assurity. However, in general, the factors determining the interest rates can be classified into two categories viz. business-related factors and factors pertaining to the lender, business owner, and the loan itself. 

Business-Related Factors

Under this head, there are two categories - capacity and type of business. Let us understand these - 

Capacity

This refers to the amount of money which businesses borrow which demonstrates their repaying capacity and the time frame in which they can do so. To guage this, lenders check the monthly revenue against the liabilities. Another factor which is accounted for here is the time since which the business has been in operation. This is because some lenders ask for evidence of profitability for two-three consecutive years when sanctioning a business loan at lowest interest rates.

Type of Business

There are some businesses which are considered to be more secure in comparison to the others. For instance, an online startup will be viewed as riskier and thus will be levied higher interest rates. 

1. Other Factors
2. There are two categories come under this. These include - 
3. Lending Institution Category

Depending on the type of lender you choose, you interest rate will be affected. For instance, the interest rates charged by NBFCs will be lesser in comparison to the conventional financial institutions. 

Loan Particulars

Different loans have different interest rates. There are two types of loans - secured and unsecured. Secured loans have cheaper interest rates in comparison to unsecured ones. However, those who are starting their businesses may not always have an asset to offer. For this reason, it is essential to compare the interest rates offered by different lenders as there are many NBFCs which offer competitive interest rates even for unsecured business loans.

Read Also: How Are Interest Rates Determined on Business Loans?