Starting a new business is never easy—especially for first-timers; no amount of planning is enough, and there is always a need for backup support. It is a very good decision to start a business and be independent, but financial planning is important. Many people take on a business loan to launch a business for the first time, but it’s important to be aware of business loan rates and fees involved. The fees and small business loan interest rates are aspects that are to be studied closely to ensure only the required expenditure is done and there is effective financial planning.
Interest Rates
Interest is the most basic type of fee that is charged by banks and NBFCs against a loan. It is calculated as a certain percentage of the borrowed amount/principal and is collected every month with EMIs/ installments. A business loan interest rate begins at just 18%. There are two types of business loan interest rates, and they are:
- Diminishing Rate of Interest: with this type of interest, the interest rate is calculated on the remaining amount, i.e., the amount left after paying each EMI.
- Flat Rate of Interest: with this type of interest, a flat rate of interest is applicable on the borrowed amount; it does not get reduced when paying.
Fees Involved in Business Loans
Along with the interest, some other types of fees are charged by the lender which new business owners should keep track of. They are:
- Foreclosure Fees: This is a fee that is levied on the borrower if he/she wishes to pay off the loan before the loan tenor gets completed.
- Conversion Fees: If the borrower wishes to convert the loan from a fixed-interest basis to a floating-interest basis, he/she has to pay the conversion fee to the lender. This fee is commonly calculated as per a certain percentage on the outstanding principal.
- Commitment Fees: This fee is charged due to the lack of us of the credit, and is done by the overdraft facility. The maximum credit limit is pre-specified by the lender in a percentage form.
- Late Payment Fees: There is a penalty fee charged by the lender if the EMI payment gets delayed. This fee is charged only in the case of a term loan.
- Loan Cancellation Fees: If you decide to cancel the loan, you will be charged the interest from issuing the loan until the cancellation of it.
- Documentation Fees: The fee for documentation of a loan is charged to the borrower along with the applicable taxes.
- Legal Fees: The charges for legal procedures are not collected at the time of applications and are collected separately.
- Miscellaneous Fees: Other fees levied on the borrower involve the cheque bounce fees, cheque swap fees, stamp duty, etc. These charges are a common part of Business Loans.
Taking on a collateral free business loan is important sometimes not only to start a business but also to expand the existing business. The above-given information will not only help you in better planning of your finances but also in comparing various lenders. Find one of the best lenders in the country for business loans with low business loan interest rates.
They should also offer pre-approved offers in addition to the loan amount, thus maximizing the benefits that you can receive. Find a company with state-of-the-art services and that provides convenience in payment and the online application. It is important to borrow from the right lender and then monitor the payment of the loan to save capital, avoid excess penalties and decrease business expenses.
