Business Loan

Everything you need to know about evolution of business loan interest rate


Are you a business owner looking to invest? Or do you want to grow your business? Either way, a business loan is your answer.

Running a successful business is no simple feat. Growing it is an experience. It can be both enjoyable and stressful. But, it has many financial-related points. Starting from investment to salaries, the range of expenses is vast. And businesses can have dips in certain periods. So, maintaining these necessary expenses at times can be difficult.

And this is where business loans help you.

All business loans have interest rates. But it depends on the lender or financial institution. It also includes loan duration and other factors. Some lenders provide cheap loans. But some charge high-interest rates. So, always negotiate the interest rates and terms ahead.

What is a business loan interest rate?

A business loan interest rate is the amount a borrower must repay the lender. It is beside the principal borrowed. It is often calculated as a percentage of the total amount borrowed.

Sometimes, interest and annual percentage rates (APR) are interchangeable. But they are not the same. APR also includes any extra lender fees.

Many factors influence these rates. It includes credit score, loan type, and loan amount. Lenders may also have certain conditions. E.g., minimal requirements for qualification.

The history of business loans in India

Do you know that India’s banking system has existed for a long time? It dates even before the British empire.

The Vedas and Manusmriti have talked about many money-lending practices. Sanskrit scriptures also contain terms like kusida, vardhusa, vridhi and vyaja. These refer to business loan interest rates in ancient India.

As early as the 5th century, business loans were given in cash and kind. The interest that may have been imposed on such loans is mentioned in ancient texts. Baudhyana, Gautama and other lawgivers wrote these. In ancient India, offering high business loan interest rates was unethical.

Later, the culture of loans in India flourished. We have proofs of the same in Arthashastra and Dharmashastra. It talks about providing business loans at different interest rates.

The Dharmashastra only allowed Vaisyas to become moneylenders. They used to levy higher interest rates to lower caste borrowers. Then, during the Mughal era, Dastawez came into play. It was a new type of money lending that became popular.

The Industrial Revolution (1733–1913 A.D.) shifted India’s focus from agriculture to industrial processes. People needed more capital for business. Thus, the whole system developed.

Many merchants offered business loans to entrepreneurs. It was to help them expand their workforce. Indentured loans were also common. The borrower had to repay the amount by working on the lender’s land.

Seths and Shroffs were moneylenders. They helped merchants with business loans during the early days of the EIC.

Many banks were also established in India during British rule. The first European bank, the Bank of Hindoostan, opened its doors in Calcutta in 1770. It offered loans for overseas trading. It did, however, fail in 1832.

Banking activity began in full swing in three presidencies. These are Bombay, Calcutta and Madras. The Bank of Calcutta was established in 1806. It aimed to fund the battles of the Marathas and Tipu Sultan. The Allahabad Bank was formed in 1865. It is still operational today.

After this, other banks were created between 1906 and 1911. It was due to the Swadeshi Movement. The Reserve Bank of India was created in 1935. It was in response to India’s economic difficulties after World War I.

Business loans during the 20th century: The advent of technology

The nationalisation of banks was a major practice post-1947. In 1949, the RBI was nationalised. It was appointed as the reserve bank regulator for all banks. India nationalised fourteen banks in 1969. This was to increase public access to banking and commercial financing.

With technological advancement, economic liberalisation in 1991 marked a new beginning. The global internet revolution was in full swing. The financial industry quickly jumped on the wagon. Since then, many banking functions have been automated. Customers can now apply for business loans online. This boosted the lending process. It also encouraged more people to apply.

There was a rapid modernisation of payment systems and settlements. This includes ECS, RTGS, and NEFT. These generated many business opportunities. And it helped small businesses to function well and fast.

Business loans of the 21st century

The whole peer-to-peer lending gradually underwent a drastic transition.

Previously, financial institutions offered a wide range of services. But they were under a single umbrella. This included almost everything. For example, typical banking, mortgages and trade services. FinTech, in its most basic form, separates these services into discrete offerings. It combines services and technology to offer better solutions. This is how FinTechs are more efficient and reduce transaction costs.

Mobile payments, blockchain and digital currencies are prominent Fintech inventions. These have radically revolutionised the financial system.

Today fintech has changed the whole banking process. Now, many business loan providers offer all businesses simple and quick platforms. It helps people to apply and get working capital fast.

Also, lenders can now better understand their clients’ demands. They can provide customised products and services.

Now borrowers can get business loans within a few hours of applying. All thanks to FinTech. You do not have to wait for loan approval for days. It takes just hours if you provide the correct documents.

Final thoughts

If you are looking for quick business loans, Piramal Finance has got you covered!

We have over 40 years of expertise and over 1 million customers. So, we are dedicated to offering you good business loan interest rates. We also have many company loans with no collateral at low rates. Get your loan approved fast without much hassle.

The whole loan application procedure is paperless. Loan repayments are also quite flexible! You can pay in instalments at your capacity.