How Do Corporate Loan Interest Rates Compare to Small Business Loans?
Discover the key differences between corporate loan interest rates and small business loans. Learn how they compare and what factors influence their rates.
When businesses in India need financing, they often turn to loans for assistance. It is essential for borrowers, whether they are large corporations or small-scale entrepreneurs managing daily operations, to understand the interest rates that will be charged on these loans.
This article will describe how different these types of loans are regarding rates to help you make a sound choice.
What Are Corporate Loans?
Corporate loans are meant for big companies or institutions. The loans are characterized by a high amount that one can borrow. This makes them most applicable when undertaking huge infrastructural projects or expanding businesses on a large scale. A lending institution must verify its financial position and creditworthiness before authorising this type of credit facility.
What Are Small Business Loans?
Small business loans are mainly for entrepreneurs and small-scale businesses. Such financial aid usually involves minimal money to help those starting their ventures or SMEs.
Additionally, their minimum qualification requirements are lower compared to those for individuals seeking to apply for more significant amounts under other categories.
Key Differences Between Corporate Loan Interest Rates and Small Business Loans
Difference #1. Interest rates
In India, corporate loan interest rates tend to be much lower than those applicable to small companies. The more established businesses, like big companies, have better payment histories and securities that are strong enough to make lenders lose less when offering. In contrast, those involved in petty trading may get charged highly due to little security or unclear repayment terms.
The rate of interest on corporate loans in India averages 8 to 12 per cent annually. On the other hand, small business loans charge approximately 10 to 18 per cent annual rates.
Difference #2. Loan amounts
The amounts that one can borrow using a corporate loan in India usually range from ₹10 crore to ₹500 crore or even more. The amount that an individual can get as a small business loan varies from ₹50,000 to ₹5 crore depending on the financier and nature of the business.
Difference #3. Tenure
Corporate loans may have long repayment periods, going up to 10-20 years at times, while small business loans often require repayment within 1-5 years.
Difference #4. Collateral requirements
When disbursing corporate loans, lenders may demand substantial securities such as real estate property or durable goods, while some small business financiers give unsecured loans only.
What Factors Affect Corporate Loan Interest Rates?
The factors that determine the corporate loan interest rate -
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Credit rating - Companies with strong credit ratings get lower interest rates.
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Economic conditions - The Reserve Bank of India’s repo rate plays a key role in determining loan rates. High repo rates lead to high interest rates on loans.
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Loan tenure - The longer the tenure, the higher the total interest, but the EMI amount might be lower.
What Affects Small Business Loan Rates?
Small business loan rates depend on -
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Revenue generated - Established businesses get lower rates since they have a track record of stable income.
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Go for a secured loan - Secured loans often have lower interest rates than unsecured ones.
What Is the Use of an APR Calculator?
An APR calculator is a device that helps you determine the annual percentage rate (APR) of a loan for a business.
For instance -
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An example of this loan is ₹10,00,000 with a 12% interest rate and ₹10,000 processing fees since its APR would be above 12%.
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You should use an APR calculator to compare loans properly to be able to make a sound financial decision for yourself.
Benefits of Small Business Loans
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No collaterals or little collaterals, so anyone can apply for it.
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Faster approval processes since there are fewer requirements.
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Tailored financial products like the Pradhan Mantri Mudra Yojana loans start from as low as 7.5%.
The Bottom Line
It is important to stop and think before taking a corporate loan or small business loan. This can help generate funds meant for business activities. Use an APR calculator when you want more information about the cost associated with borrowing.
Small business owners should look into government schemes that offer favourable terms. On the other hand, corporations need strong credit scores and detailed project plans if they bid to access low, competitive rates.
Choose wisely to fuel your business’s growth!
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