What are the Interest Rates and Benefits of a Term Loan?

The number of SMEs in India is currently estimated to be at 42.5 million. This includes both the registered businesses as well as unregistered operations around the country. Interestingly, these businesses alone contribute to around 95% of India’s industrial units.

The functioning of SMEs and similar small-scale ventures depend largely on the availability of financing.

It is crucial to maintain all operational functions. As a result, understanding the different term loan interest rates and other features which are offered as business loans are crucial for entrepreneurs.

Essentially, financial institutions provide both secured and unsecured loans to businesses like MSMEs and others. While short-term and intermediate loans are generally unsecured, business organisations can also opt to avail long term secured loans.

Interest rates offered on term loans

Consequently, lenders offer the following interest rates on business loans to their borrowers.

• Unsecured term loans: The rate of interest on unsecured term loans is generally a little higher than those on secured loans.
• Secured term loans: Applicable interest rates offered on business loans against the mortgage of the property or other collateral are lower than in comparison to unsecured credits.

A few additional charges are also applicable to these loan products, though they are generally required only at the time of application.

These vary across different financial institutions though charges like processing fees do not necessarily go above 2% of the loan amount.

Benefits offered on term loans

While these term loan interest rates are economical and attractive, it is also essential for entrepreneurs to understand the different benefits which are offered by these financial products.

It is vital to note that these benefits also emphasize on the different purposes for which these loans can be availed by businesses.

• Helps cash flow: Every business requires working capital to maintain its production chain or service. These loans provide financing to help maintain the cash flow to keep all the components of the business functioning optimally. Additionally, these loans can also help when an enterprise is increasing its production or service range.
• Upgrade or installation: Term loans are effective financial products which can be availed to upgrade a production unit. From general upgrades to technological, every financial necessity in this regard can be met with such credits. MSMEs and other start-ups can even avail these lines of credit to start their business or install new apparatus.
• High financing: These financial products from different NBFCs offer high financing to MSMEs and start-ups, adequate to meet all financial requirements. Typically, top lenders offer up to Rs.30 lakh as unsecured business loans, which can increase further in the case of mortgage loans. A crucial strategy to zero in on the right business loan lender is to check the amount of financing they offer as per your eligibility.
• Convenient tenor options: Typically loan tenors ranging up to 60 months are considered short-term. Vitally, these are unsecured loans. Secured loans can have longer tenors which go up to 25 years.
• Fast approval: Financial institutions typically approve these loans within 24 hours. This is also accompanied by a fast disbursal of money, adding to the convenience of the business organisations.

Along with all benefits and convenient business loan interest rates that are offered by financial institutions, it is also important to know the application process for these loans.

Easy procedure for application along with convenient term loan interest rates makes these financial products a convenient option to expand business operations or start a new venture.

For upcoming entrepreneurs, it is also important to strategize properly before they start a business.

They should also consider looking for advises on how to be a successful small business owner to minimize the risks in their venture