MSMEs are important to the country’s economy, fostering innovation, creating jobs, and contributing to GDP. MSME loans provide funds for the expansion of MSMEs or carrying out daily operations. However, the cost of these loans depends on the interest rate, which influences the financial health of MSMEs and their ability to grow.
MSME owners must closely understand the factors that influence these rates to secure the best financing options. Lower interest rates can reduce the repayment burden, allowing businesses to invest more in their operations and expansion.
Here, we will look at the interest rate on MSME loans provided by LoanTap, how to calculate EMI and factors that affect the interest rate.
The interest rate on an MSME loan refers to the charges a lender applies for providing money to a firm. This rate helps determine the overall cost of borrowing.
The interest rate on MSME loans depends on several factors, such as your credit score, and the loan amount and repayment tenure you choose.
| Particulars | Details |
| Loan Amount | Min – 50,000, Max – 10 lakhs |
| Tenure | Min – 6 Months, Max – 36 Months |
| Age | Min-23, Max-58 (Co-applicant required if age >55) |
| Rate of Interest | 19.99% to 26% p.a |
| Processing Fee | 2% to 2.99% + GST |
| Business Vintage | Min. 2 Years |
| Bureau Score | >=700, NTC allowed (with Loan amount capping) |
How to Calculate MSME Loan EMI?
To plan your finances efficiently, it is important to know the payable interest for the loan amount you are planning to borrow.
Below is how you can manually calculate the interest amount and the total EMI on business loans:
Where,
P = Principal Amount
R = Rate of Interest
N = Tenure
With the above formula, you will be able to calculate the payable EMI. However, manual calculations may not always be precise. For accurate results, you can use LoanTap’s loan EMI calculator. All you need to do is visit the LoanTap website and enter the basic details, such as the desired loan amount, the loan period, and the applicable interest rate.
An EMI calculator can help you determine your monthly EMI and the total amount of interest that must be paid over the loan tenure.
Factors Affecting MSME Business Loan Interest Rate
Here are some factors that affect the MSME business loan interest rate:
Creditworthiness
Using the borrower’s financial history and credit score, lenders decide whether or not the loan should be approved and the interest rate that will be charged. Usually, borrowers with higher credit scores can obtain loans at lower interest rates, while those with lower credit scores may be charged higher rates.
Loan Type
The type of loan also affects the interest rate. For example, secured loans usually have lower interest rates because they require collateral, which allows the lender to claim it if the borrower fails to repay. Unsecured loans, on the other hand, don’t require collateral and often come with higher interest rates.
Loan Amount
Higher loan amounts might charge lower interest rates as they generate more revenue for the lender. In contrast, smaller loans may have higher rates.
Repayment Term
The amount of time you have to repay the loan, known as the loan tenure, may also affect the interest rate in some cases. Longer repayment terms might come with lower interest rates as they can spread out the borrower’s monthly payment burden, but in some cases, they could also have higher rates. Similarly, shorter terms might come with either higher or lower rates depending on the lender’s approach.
Industry Health
Lenders often look at how an industry is doing and its chances for growth. If the industry is facing challenges, lenders might charge higher interest rates due to the risk of defaults. But if the industry has good growth potential, the rates might be lower.
Market Conditions
Interest rates can fluctuate based on current market conditions. If the economy is strong, interest rates might be lower due to increased competition among lenders. Conversely, during economic downturns, rates could rise as lenders become more cautious.
Conclusion
Understanding the MSME loan interest rate is important for managing your business’s finances effectively. To get the best loan terms, consider factors like industry health, your credit score, and market conditions.
Choosing the right lender is important as it affects the overall amount you will pay. LoanTap offers competitive interest rates on MSME loans, making it easier for you to reach your business goals.
Frequently Asked Questions
What is the impact of MSME loan interest rates on your EMI?
The interest rate directly affects the EMI of an MSME loan. A higher interest rate increases the EMI amount and the total interest payable over the loan tenure. Conversely, a lower interest rate reduces the EMIs and the overall cost of the loan, depending on the tenure you choose.
How does the credit score of the business owner affect MSME loan interest rates?
The business owner’s credit score plays a significant role in determining the interest rate for an MSME loan. A high credit score indicates good creditworthiness and may lead to lower interest rates. Conversely, a low credit score poses a higher risk of default to the lender and may result in higher interest rates.
Are there any government schemes offering lower interest rates for MSME loans?
Yes, several government schemes, such as the Prime Minister Employment Generation Programme (PMEGP) and the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), offer subsidized interest rates and other benefits to encourage the growth of MSMEs. These schemes often provide lower interest rates compared to regular commercial loans.
Can the interest rates on MSME loans change over time?
Yes, the interest rates on MSME loans can be either fixed or floating. The fixed interest rates stay constant during the loan tenure, providing stability in repayment. Floating interest rates, on the other hand, fluctuate depending on the condition of the market or the changes in the lender’s base rate, affecting the EMI amounts.
Are there any additional charges apart from the interest rate for MSME loans?
Yes, in addition to the interest rate, borrowers may be required to pay additional charges such as processing fees, documentation charges, prepayment penalties, and late payment fees. It’s important to review all the associated costs with the lender before taking an MSME loan.
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