Business loan interest rates are one of the most important aspects of any commercial financing decision. Whether you are a small business owner seeking to expand or a startup planning to launch operations, the cost of borrowing significantly impacts your profits. In this guide, we will explore everything you need to know about business loan interest rates—from the factors that influence them to comparing rates across lenders and how to secure the best rate for your business needs.
What Are Business Loan Interest Rates?
Business loan interest rates are the cost that lenders charge businesses for borrowing money. They are expressed as a percentage of the principal loan amount. These rates determine how much a business will repay over time in addition to the original amount borrowed.
There are two main types of interest rates:
- Fixed Interest Rate – The rate remains constant over the life of the loan.
- Variable Interest Rate – The rate changes based on market conditions or benchmark rates.
Why Business Loan Interest Rates Matter
The interest rate on a business loan affects several financial aspects:
- Total repayment amount
- Monthly installment burden
- Profitability of business operations
- Return on investment (ROI)
Even a small difference in interest rates can result in large cost differences over the term of a loan.
Factors That Influence Business Loan Interest Rates
Lenders consider various factors when setting interest rates for business loans:
| Factor | Description |
|---|---|
| Credit Score | A higher business or personal credit score often leads to lower interest rates. |
| Loan Amount & Tenure | Larger or longer-term loans may carry different rates depending on risk and lender policies. |
| Type of Business Loan | Secured loans usually have lower interest rates compared to unsecured loans. |
| Business Vintage | Lenders may offer lower rates to businesses with a longer operational history. |
| Industry Risk | High-risk industries may attract higher business loan interest rates. |
| Cash Flow & Revenue | Strong cash flow and consistent revenue lower the risk, thus reducing rates. |
Types of Business Loans and Their Interest Rates
Different types of business loans come with different interest rates based on the loan structure, risk, and repayment flexibility.
| Type of Business Loan | Typical Interest Rate Range (per annum) | Best For |
|---|---|---|
| Term Loans | 9% – 18% | Expansion, asset purchase |
| Working Capital Loans | 11% – 20% | Day-to-day expenses |
| Equipment Financing | 8% – 15% | Buying machinery or equipment |
| Invoice Financing | 12% – 24% | Managing cash flow delays |
| Business Line of Credit | 10% – 18% | Ongoing working capital needs |
| Microloans | 12% – 25% | Startups and small businesses |
| Merchant Cash Advance | 18% – 36% | Quick, short-term capital |
Business Loan Interest Rates from Top Lenders (2025)
| Lender | Rate Range (p.a.) | Fixed / Floating | CIBIL / Credit Tier | Women / Special Concessions | Key Products & Limitations |
|---|---|---|---|---|---|
| Kotak Mahindra Bank | 11.50% – 19.00% | Floating | Risk-based; strong CIBIL (≥750) gets lower rate. | None specified | Business loan for MSME/self-employed; processing ~2%; tenure up to 5 yrs |
| HDFC Bank | 10.75% – 22.50% | Floating (rack IRR) | Based on business profile, turnover | NIL; women MSMEs may get govt scheme benefit | Term, Flexi, Hybrid term loans; small-business OD; no foreclosure up to ₹50 L |
| ICICI Bank | ~16.00% (flat) | Fixed/Floating options | Tiered on credit and turnover (select+) | NLP for women professionals in SME scheme | Term loans, OD, working capital; up to ₹50 L–₹1 Cr |
| Axis Bank | 11.50% – 19.00% | Floating | Credit-and-risk linked; stronger CIBIL lowers rate | None stated | SME/business loans, CC, OD, term loans; quick approvals |
| Tata Capital | 12.00% – 26.00% | Fixed/Floating | Professionals (12–17.5%), non-professionals (14–26%) | Has Women Entrepreneur loan product | Term, machinery, hybrid; processing up to 3%; flexible repayment |
| Bajaj Finserv | 14.00% – 26.00% | Fixed | Credit-based; CIBIL ≥685 to access lower rates | None noted | Flexi, term, hybrid business loans; prepay charges up to 4.7% |
| IDFC First Bank | 11.18% – 15.00% | Floating | Standard CIBIL requirements | NIL | Business loans, MSME term; digital process |
🔍 Key Insights
- 📉 Lowest Starting Rates:
- HDFC begins at 10.75%, followed by Kotak/Axis at 11.50%.
- IDFC First offers competitive mid-range rates (11.18–15%).
- 📈 NBFC Higher Rates:
- Bajaj, Tata, LendingKart, and Indifi feature high-end rates up to 26–35%, typically for unsecured loans.
- ✔️ CIBIL-Based Pricing:
- Kotak, Axis, and HDFC provide tiered pricing: higher scores credit better rates .
- Bajaj requires at least a CIBIL score of 685 for favorable rates.
- 🔒 Fixed vs Floating:
- Most banks and NBFCs offer floating rates, while Tata and Bajaj offer fixed-rate variants.
- 👩 Women & MSME Support:
- Tata Capital and Indifi have dedicated products for women entrepreneurs.
- Public scheme access (e.g., CGTMSE) may benefit women-led MSMEs.
- 📦 Product Variety:
- Options span term loans, working capital/CC, overdrafts, machinery finance, flexi hybrid variants, and digital instant loans.
🧭 Best-Fit Recommendations
| Scenario | Suggested Lender |
|---|---|
| Lowest rate for standard business | HDFC Bank |
| MSME or salary-linked business loans | Kotak or Axis |
| Fixed-rate structured loans | Tata Capital or Bajaj |
| Women-led ventures | Tata Capital, Indifi |
| Quick unsecured digital loan | LendingKart/Indifi |
Business Loan Emi Calculator
How to Get the Best Business Loan Interest Rates
Here are practical steps you can take to lower your interest rate:
1. Maintain a Good Credit Score
Both your personal and business credit scores should be strong. A score of 700+ improves your chances of securing favorable rates.
2. Show Stable Cash Flow
Lenders prefer businesses that demonstrate healthy cash flow and revenue consistency.
3. Choose Secured Loans
If possible, offer collateral like property or equipment to access lower interest rates.
4. Shorter Loan Tenure
Choosing a shorter repayment term often comes with a reduced rate.
5. Compare Across Lenders
Don’t settle for the first offer. Compare business loan interest rates from multiple sources.
6. Negotiate with Your Bank
If you have a long-term relationship with your bank, use it to negotiate a better deal.
Secured vs Unsecured Business Loans: Interest Rate Differences
| Criteria | Secured Loan | Unsecured Loan |
|---|---|---|
| Interest Rate | 9% – 15% | 12% – 36% |
| Risk to Lender | Lower (due to collateral) | Higher (no security) |
| Loan Amount | Higher limits possible | Usually lower |
| Credit Score Dependency | Moderate | High |
Impact of Loan Tenure on Interest Rates
Loan tenure plays a significant role in determining business loan interest rates.
| Loan Tenure | Typical Interest Rate | Best Use Case |
|---|---|---|
| Less than 1 year | 14% – 30% | Short-term needs or working capital |
| 1 – 3 years | 11% – 20% | Equipment or project-based loans |
| 3 – 5 years | 9% – 16% | Expansion, large investments |
Business Loan Interest Rates vs Other Loan Types
| Loan Type | Interest Rate (per annum) | Key Difference |
|---|---|---|
| Business Loan | 9% – 36% | Based on business health and revenue |
| Home Loan | 8% – 10% | Secured by property |
| Personal Loan | 10% – 24% | Based on individual creditworthiness |
| Car Loan | 8% – 12% | Secured by vehicle |
How Interest Is Calculated on Business Loans
There are two common methods for calculating interest:
- Flat Rate Method: Interest is calculated on the full principal throughout the term.
- Reducing Balance Method: Interest is calculated on the outstanding loan balance.
Most modern lenders use the reducing balance method, which reduces your total cost over time.
Tips to Manage Business Loan Repayments Efficiently
- Set up Auto-Debits: Ensure EMI is paid on time to avoid penalties.
- Create a Repayment Calendar: Align loan repayments with business cash flow.
- Prepayment Strategy: Use surplus cash to prepay and save on interest.
- Avoid Multiple Loans: Too many loans may lead to cash crunch and lower credit scores.
When Should You Refinance Your Business Loan?
Refinancing can help you benefit from lower business loan interest rates if:
- Your credit score has improved
- Interest rates in the market have dropped
- You want to reduce EMI by extending tenure
- You want to consolidate multiple loans
FAQs
A. In India, business loans range from 10% to 26% p.a., depending on lender type—banks offer the lower end, while NBFCs and digital lenders charge higher rates.
A. Fixed rates remain stable throughout your loan.
Floating rates change with market benchmarks like MCLR or repo rates, offering lower initial rates but possible future variability.
A. A strong CIBIL score (≥750) usually secures lower interest rates. Lenders adjust your rate based on credit tier, with good scores unlocking the most competitive rates.
A. Yes. While banks offer ~10–15%, NBFCs and fintech lenders often charge 14–35%+, reflecting higher risk and lack of collateral .
A. Some lenders (like Tata Capital and Indifi) and government-backed schemes provide special discounts or products tailored for women-led or MSME businesses .
A. Products include:
Term loans (one-time disbursal)
Working capital & overdraft
Equipment financing
Flexi/Hybrid loans
Rates vary based on loan type .
A. Yes. Lenders may offer reduced rates if you bring strong credit, higher turnover, or negotiate using competitive quotes .
A. Often, yes. Existing customers or those with salaried accounts can access discounted or fixed-rate offerings through their lender relationship .
A. Higher interest increases both EMI and total cost of borrowing. Small differences can add up over time—e.g., a 2% difference on a ₹1 Cr loan over 5 years can cost lakhs extra .
A. Yes. Secured loans (backed by collateral like property) typically have lower interest rates (closer to bank rates) compared to unsecured loans, which are priced higher due to greater risk .
Conclusion
Understanding and comparing business loan interest rates is crucial to making wise financial decisions for your enterprise. Whether you’re opting for a short-term working capital loan or a long-term expansion loan, the interest rate affects your repayment strategy and overall profitability.
Always compare offers, understand your business’s financial health, and choose a loan structure that aligns with your revenue cycle. A well-chosen loan with a favorable interest rate can empower your business to grow steadily without financial strain.