Business Loan

All You Need To Know About The Fluctuations In The Business Loan Interest Rate In 2022


As a business owner, you might need to apply for an online business loan for many reasons. It could be because you want to pay off some small costs or make a major investment. There will always be a degree of uncertainty around why and when one would need financial assistance. However, one thing you can control is ensuring you get a business loan that suits your requirements. Business owners opt for online business loans as the process is easy and convenient. When taking a business loan, you should look for the best business loan interest rate to ensure a lower loan cost. But getting the best deal is not as easy as it sounds, especially in the present times.

However, since the COVID-19 pandemic, it has become a bit tough to get the best deal on a business loan. Banks and Non-banking Financial Companies (NBFCs) have become strict with the rules and eligibility criteria as they want to ensure that the borrower can repay the loan on time. This means that they factor in many elements when deciding the business loan interest rate they will charge on your loan. Let’s look at the factors influencing business loan interest rate In 2022.

Fluctuations in Business Loan Interest Rate

When you get an online business loan from a bank or NBFC, the lender offers you a specific business loan interest rate. Do you know how the lender decides the interest rate? A huge factor is the monetary policy of RBI (Reserve Bank of India). RBI announces a new monetary policy regularly to keep inflation under control and help the economy grow steadily.

Most lenders determine their interest rates based on the repo rate and the reverse repo rate from the RBI. For most of 2022, the repo rate has been 4% and the reverse repo rate has been 3.35%. This policy decreased the cost at which the banks borrow from RBI. This allowed banks to offer loans at lower interest rates. Hence, businesses have been taking advantage of this policy and have used the money to expand their operations.

But as the inflation grew in the latter half of 2022, RBI had to take some measures. It decided to increase the repo rate in a phased manner. As a result, in October 2022, the repo rate was fixed at 5.90%. This leads to many banks and NBFCs increasing their interest rates for business loans. Based on how the economy will do in the future, you can expect changes in the business loan interest rates.

Factors Affecting Business Loan Interest Rate

Many factors can affect your business loan interest rate. Before applying for an online business loan, you should be aware of a few factors that can impact interest rates.

  • Repo Rate Changes: As discussed earlier, the repo rate directly impacts the interest rate. If there is an increase in the repo rate, banks and NBFCs borrow less from the RBI. They then increase the business loan interest rate to balance demand and supply.
  • Inflation: When the cost of living increases, RBI is required to control the flow of money in the market. To control the money supply, RBI might increase the repo rate. When this happens, the banks would increase their interest rates, leading to an increased loan cost for business owners. As fewer loans are taken, inflation decreases.
  • Credit Rating: Banks and NBFCs check the credit score of the borrower before giving a loan. An ideal credit score for an online business loan can be between 700 and 750. The lenders will offer you a lower interest rate if your credit score is in this range. But if your CIBIL score is less than 700, then only a few lenders will offer you an online business loan, but at a high-interest rate.
  • Track Record: Lenders factor in your EMI payment track record to decide the business loan interest rate. If you have been paying your EMIs on time and there have been no cheque bounces, you can get a business loan at a lower interest rate. If you have missed repayments, you might be charged a high-interest rate.
  • Nature of loan: If you have an asset, such as land or machinery as collateral, you can get a secured business loan from a lender. As this loan is safe for the lenders, they will charge a lower business loan interest rate. But if you apply for an online business loan but do not have any security to offer, then the interest rate will be much higher.
  • Business Performance: Many lenders decide on a business loan interest rate based on your business’s track record. You can get a lower interest rate if your business has been consistently making profits in your business for the last many years and have a positive cash flow. But if your business has been making losses or faces cash flow problems, then the interest rate for the online business loan will be higher.

The Bottomline

Public and private sector banks of India provide loans to eligible businesses. If your business needs financial assistance or if you need money to make new investments, an online business loan is a great way to get help. However, it is vital to ensure that you get the best business loan interest rate. For the best online business loan offers, you must do detailed research and stay updated with the latest interest rates and influencing factors. Piramal Finance offers more such insights on business loans and has informative blogs about finance. Keep reading to learn more about money matters!