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4 Important Factors that Affect SME Loan Interest Rates

Published on Jan 27, 2023Updated on May 21, 2024

4 Important Factors that Affect SME Loan Interest Rates

For entrepreneurs to operate and grow their businesses, they need access to business loans. Loans can offer you funds to cover a range of expenses, from unanticipated costs to paying for new equipment to large-scale growth initiatives. Small business owners have a more pressing need for working capital because they do not have the same access to liquidity and cash as larger companies. The SME loan interest rates, however, are one of the crucial factors that determine whether or not the company should apply for a SME loan.

Let's examine the variables that affect the accessibility of business loans and their interest rates.

4 Key Factors Affecting SME Loan Interest Rates

To get the best deals on business loans, it's essential to understand the factors that affect the interest rates on business loans. The following are the primary four such factors:

1. Nature Of Business

Every company has a unique business model. Some may be service-oriented, while others may be production-oriented. Due to a variety of variables, certain firms also bear a larger risk. Moreover, the future prospects and growth of the industry you're currently operating in, your own business expansion plans, etc., play a major role in determining your interest rates.

The more stability and future security that your SME works with, the lower your SME loan interest rates.

2. Creditworthiness

Overall, the statement is mostly correct. A borrower's creditworthiness is an important factor in determining the likelihood of a business loan being approved and the interest rate. Lenders use a variety of factors to determine creditworthiness, including a business credit score, debt-to-income ratio, and overall payment history. A high credit score of 750 or above is generally considered to be an indication of creditworthiness and can lead to more favorable loan terms. However, credit score is not the only factor, lenders also look at the overall financial health of the company and its ability to repay the loan.

Must Read: Reasons Why Collateral Is Necessary For SME Loan

3. Annual Turnover

Lenders will view it favourably if your company can consistently turn a profit because it increases your ability to make repayments. To increase your chances of obtaining financial capital in the future quickly and at the best rates, it is necessary to maintain a consistent and increasing annual turnover.

You can prove so through previous records, and previous account transactions. If you can vouch for your financial stability well, you can land affordable SME loan interest rates.

4. Business Financials And Vintage

When you apply for a business loan, the interest rate is heavily influenced by the company's financial standing. A business that has solid financials is a better candidate for a loan since it can be trusted to pay back the debt on time. The lender would assess the foundation of your business using the cash flow statement, balance sheet, and profit and loss account.

Additionally, a business owner's abilities are demonstrated by their track record of long-term success. As a result, an older, more established business is more likely to have easier access to better interest rate loans than a new one.

Eligibility Criteria for SME Loan

  • Minimum age requirement of 22 years at the time of application and maximum of 65 years at loan maturity
  • In case of individuals, at least 3 years of experience in current business and a total of 5 years of business experience
  • Eligible business types include self-employed individuals, proprietors, private limited companies, and partnership firms working in manufacturing, trading, or services
  • Minimum annual business turnover of Rs. 10 lakhs per year
  • Minimum 2 years of profitability in the business
  • Minimum annual income (ITR) of Rs. 2 lakhs per year


Financial institutions like SMFG India Credit now provide a range of lending options to businesses in the same way that they do to individuals. It is crucial to maintain control over your company's finances and constantly work to earn the trust of lenders so that you can easily obtain business loans whenever you require them.

SMFG India Credit offers a variety of collateral-free business loan solutions for up to INR 75 Lakhs* to fit your company's needs. In light of the aforementioned considerations, we provide reasonable interest rates and flexible payback terms of up to 48 months*. To apply for a business loan online, visit SMFG India Credit's Apply Now page to start the application process.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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