Micro, small and medium enterprises are important to the country’s economy, promoting innovation, creating jobs and contributing to the gross domestic product. MSME loans provide funds needed to expand MSMEs or carry out day-to-day operations. However, the cost of these loans depends on the interest rate, which affects the financial health of MSMEs and their ability to grow.
MSME owners must closely understand the factors that affect these rates to secure the best financing options. Lower interest rates can reduce the burden of repayments, allowing companies to invest more in their operations and expansion.
Here, we’ll take a look at the interest rate on SME loans offered by LoanTap, how the monthly installment is calculated and the factors that affect the interest rate.
The interest rate on an MSME loan refers to the fees applied by the lender for providing funds to the business. This rate helps determine the total cost of borrowing.
The interest rate on SME loans depends on several factors, such as your credit score, the loan amount and the repayment term you choose.
| details | details |
| Loan amount | Minimum – 50,000, Maximum – 10,000 |
| Possession | Minimum – 6 months, Maximum – 36 months |
| age | Minimum 23, maximum 58 (a companion is required if over 55) |
| interest rate | 19.99% to 26% annually |
| Processing fees | 2% to 2.99% + GST |
| Vintage business | minute. Two years |
| Office points | >=700, NTC allowed (with maximum loan amount specified) |
How to calculate the monthly installment for an SME loan?
To plan your finances efficiently, it is important to know the interest accrued on the loan amount you plan to borrow.
Here’s how to manually calculate the interest amount and total monthly installment on business loans:
where,
P = principal amount
R = interest rate
n = possession
Using the above formula, you will be able to calculate the monthly installment payable. However, manual calculations may not always be accurate. To get accurate results, you can use LoanTap’s EMI Calculator. All you have to do is visit the LoanTap website and enter basic details, such as the desired loan amount, loan term, and applicable interest rate.
The monthly installment calculator can help you determine your monthly installment and the total amount of interest that must be paid over the life of the loan.
Factors affecting the interest rate on SME loans
Here are some of the factors that affect the interest rate on SME loans:
Creditworthiness
Using the borrower’s financial history and credit score, lenders decide whether or not to approve the loan and the interest rate to charge. Typically, borrowers with higher credit scores can get loans at lower interest rates, while those with lower credit scores may be charged higher rates.
Loan type
The type of loan also affects the interest rate. For example, secured loans usually have lower interest rates because they require collateral, allowing the lender to claim it if the borrower fails to repay. On the other hand, unsecured loans do not require collateral and often come with higher interest rates.
Loan amount
Higher loan amounts may charge lower interest rates because they generate more revenue for the lender. In contrast, smaller loans may have higher rates.
Payment term
The amount of time you have to repay the loan, known as the loan term, may also affect the interest rate in some cases. Longer repayment terms may come with lower interest rates because they can spread the burden of the monthly payment across the borrower, but in some cases, they can also have higher rates. Likewise, shorter terms may come with higher or lower interest rates depending on the lender’s approach.
Industry health
Lenders often look at industry performance and growth opportunities. If the industry is facing challenges, lenders may charge higher interest rates due to the risk of default. But if the industry has good growth potential, the rates may be lower.
Market conditions
Interest rates can fluctuate based on current market conditions. If the economy is strong, interest rates may be lower due to increased competition among lenders. Conversely, during economic downturns, interest rates can rise as lenders become more cautious.
conclusion
Understanding the interest rate on SME loans is important for managing your company’s finances effectively. To get the best loan terms, consider factors such as the health of the industry, your credit score, and market conditions.
Choosing the right lender is important because it affects the total amount you will pay. LoanTap offers competitive interest rates on Small and medium enterprise loansmaking it easier for you to achieve your business goals.
Frequently asked questions
What effect do SME loan interest rates have on your monthly installment?
The interest rate directly affects the monthly installment of an SME loan. A higher interest rate increases the monthly installment amount and the total interest payable over the life of the loan. Conversely, a lower interest rate reduces the EMIs and the total cost of the loan, depending on the term you choose.
How does an employer’s credit score affect interest rates on SME loans?
A business owner’s credit score plays an important role in determining the interest rate for an SME loan. A high credit score indicates good creditworthiness and may result in lower interest rates. Conversely, a lower credit score poses a greater risk of default for the lender and may result in higher interest rates.
Are there any government programs that offer lower interest rates for SME loans?
Yes, several Government schemesThe government, such as the Prime Minister’s Employment Generation Program (PMEGP) and the Credit Guarantee Fund for Micro and Small Enterprises (CGTMSE), offers subsidized interest rates and other benefits to encourage the growth of MSMEs. These schemes often offer lower interest rates compared to regular business loans.
Can interest rates on MSME loans change over time?
Yes, interest rates on SME loans can be either fixed or variable. Fixed interest rates remain constant over the life of the loan, providing stability in repayment. Floating interest rates, on the other hand, fluctuate depending on the market condition or changes in the lender’s base rate, which affects the EMI amounts.
Are there any additional charges other than the interest rate on MSME loans?
Yes, in addition to the interest rate, borrowers may be required to pay additional fees such as processing fees, documentation fees, prepayment penalties, and late payment fees. It is important to review all associated costs with your lender before obtaining an SME loan.
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