How to Improve the Chances of Getting Lowest Business Loan Interest Rate?


A business is nothing but the capacity to take calculated risks to sell a product or service, and make profits. However, there could be numerous situations wherein, a business’ growth is dependent sheerly on the availability of funds. The business needs financial backing to grow its base, expand or diversify, as per its phase of growth. This need for funds can be fulfilled in one out of two ways –

  • By using the savings of the business
  • By opting for a Business Loan

A vast majority of companies opt for the latter choice; since it keeps their savings intact and helps them have a cushion, in case the business goes into losses. That being said, taking a Business Loan isn’t a child’s play. In fact, most lenders only approve a Business Loan application after due diligence of the business operations and through verification of documents.

Moreover, banks may even demand collateral in lieu of the loan amount, not to mention the high Business Loan interest rates. For, they want to ensure their safety, in case the business fails to generate the revenue required to pay back the loan amount.

To say the least: whether you are opting for an HDFC Business Loan or any other Business Loan for that matter, you may find the process a little overwhelming. However, you need not worry. We are about to dispel the mystery around this much sought-after loan product, thereby improving the chances of helping you bag the best Business Loan interest rate. All you need to do is simply follow the below-mentioned tips!

  • Thoroughly Assess The Need For Business Loan

In order to convince the lender of your business’ need for the loan, and to establish your ability to repay the loan within the stipulated timeline, it is extremely important to communicate the same to the lender effectively. To this end, you must have a streamlined business plan which reflects the use of the additional funds, while also outlining the revenue stream to recoup the investment and earn returns.

Having a streamlined plan will ensure the lender’s faith in your business project. This encourages them to offer you the required loan amount at competitive interest rates. Besides, it may also help you assess which loan instrument would best serve your purpose – a Business Loan, Personal Loan, Invoice Financing, Equipment Loan, Merchant Cash Advances, or a Term Loan!

  • Are your Documents Ready?

Whether you are a start-up, a small scale business, or a large organization, when you are planning to opt for a Business Loan, it becomes increasingly important to have all your documents in place. Not only does this preparation helps the lender perceive you as a responsible borrower but also helps them evaluate the growth of the business till date. Of course, when you approach the lender for the loan, they will give you a comprehensive checklist of the documents you need to submit, however, it is best to prepare the documentation in advance. This will help you shop around for lenders, and have an upper hand when it comes to finalizing the loan interest rates.

Many small businesses often ignore the documentation aspect due to lack of resources. However, one must understand the significance of documents, both, pertaining to the business registration and those reflecting the financials for the lender. After all, no reputable lender would lend to a business which cannot prove its financial stability.

  • Have a Commendable Credit History

To assess your behaviour as a borrower, and your ability to repay the loan, the lender largely relies on your credit history. If yours is a large business organization, the credit rating will essentially come from bureaus such as CRISIL or ICRA. However, if you are a small business, your credit history may not be available. In such a case the lender will primarily base its decision of approving your loan application on the personal credit history of the business partners. In both cases, the credit score must be good enough for the lender to place their trust in you and your business. To this end, you must have paid all your past loans in due time, without any delays or defaults under your name, or under your business’s name.

Since a good credit history assures the lender of your creditworthiness and reduces their risk proposition, it can help you avail the Business Loan at favourable interest rates. To check your affordability for the loan you can check the EMI through Business Loan EMI Calculator.

  • Have a Reliable Financial Standing

It should not come as a surprise that any lender would only want to offer a loan to a borrower who has the capacity to repay the loan, complete with interest and in a timely manner. As a business seeking a loan, it is your onus to exhibit your creditworthiness. This should reflect in both your past accounting records and ITR, as well as in your future projections. Of course, simply expecting or projecting a great return in the future, without being able to testify the same with past records would prove to be of no use. Your projections should be based on realistic business growth, and with due consideration to internal and external factors that might affect the business in the near future.

Having your finances in order, and expecting a loan amount in line with the same would significantly increase your credibility, thereby enhancing your chances of getting the loan approved at favourable interest rates.

  • Shop Around

If you are a small business or a new one in the space with little or no documents to show your business revenues, it may be in your interest to shop around in search of a suitable lender. You need a lender that is willing to offer you the loan despite your limitations. In this regard, you can rely on new age commercial banks in addition to other lending platforms which are open to the idea of offering loan to borrowers who are unable to furnish extensive documentation.

In this case, however, you may have to settle for a comparatively higher interest rate. Alternatively, you can choose to offer collateral for the loan. This will help reduce the lender’s risk proposition, thereby ensuring reduced rates. That being said, you will have the much desired option of exploring the market for a loan alternative that best suits your business needs.

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