Understanding unsecured business loan interest rates is essential for any business owner or entrepreneur looking to secure financing. Whether you’re a small business owner or managing a growing company, knowing what influences business loan interest rates can help you make informed decisions when applying for an unsecured business loan.
In this blog, we’ll walk you through the current unsecured business loan interest rates in India, the factors that affect these rates, and how you can secure the right type of loan to best suit your business needs.
Market Overview and RBI Policy Environment
The interest rate on unsecured business loans in India is highly influenced by the broader economic environment, particularly policies set by the Reserve Bank of India (RBI). Over the past few years, the RBI has focused on creating a favourable environment for small business loans by keeping interest rates relatively low. However, while the base rate set by the RBI plays a critical role in determining loan rates, it’s important to recognise that interest rates also depend on individual lenders’ policies.
For instance, banks and NBFCs (Non-Banking Financial Companies) may offer different rates based on their own internal risk assessments and operational costs. The eligibility criteria for these loans typically include factors like credit score, business turnover, and even the nature of the business. In addition, the RBI’s monetary policy can influence these rates, especially in times of economic uncertainty, as lenders adjust their rates to manage risk.
Moreover, the increasing push for digitisation in the Indian finance sector has led to more lenders offering unsecured business loans online, with competitive interest rates. Businesses looking for fast, flexible funding options may consider online platforms as they often offer lower interest rates and faster loan approval compared to traditional banks.
Typical Unsecured Business Loan Interest Rate Ranges
As expected, these interest rates are typically higher compared to secured business loans. This is because unsecured loans don’t require any collateral, which means the lender takes on more risk. In India, the interest rate on unsecured loans generally ranges between 10% to 35% per annum. The specific rate you receive depends on several factors, including your type of business, your creditworthiness and the loan amount you apply for.
Here’s a general breakdown of interest rates from different types of lenders:
- Public Sector Banks: Typically offer rates between 10.5% and 16% per annum.
- Private Sector Banks and NBFCs: Their rates tend to be higher, ranging from 14% to 25% per annum, depending on the borrower’s financial profile and the loan tenure.
- Fintech Lenders: These lenders often offer lower interest rates than traditional banks, with rates ranging from 12% to 20% per annum, depending on the business size and credit score.
It’s important to note that while some lenders may offer relatively low interest rates, the repayment terms and fees and charges may differ. Always compare offers from different lenders to find the best deal.
Factors Influencing Rates on Unsecured Loans
The interest rate on an unsecured business loan is not the same for all MSMEs. Several factors determine the business loan interest rates offered by lenders. Here are some of the key factors:
1. Creditworthiness
Your credit score is one of the most important factors affecting the interest rate. Lenders use your credit profile to assess the likelihood of timely repayment. A higher credit score typically translates to a lower interest rate, as it signals a lower risk for the lender. On the other hand, if your credit score is below average, lenders may offer higher rates to mitigate risk.
2. Loan Amount and Tenure
The loan amount and repayment tenure you choose will also affect the interest rate offered. Generally, smaller loans (under ₹5 lakh) attract slightly higher rates, while larger loans (above ₹10 lakh) may have more favourable terms. Similarly, shorter tenures often come with lower rates, as the risk is reduced for lenders when the loan is repaid quickly.
3. Business Stability and Turnover
The turnover of your business plays a significant role in determining your eligibility for an unsecured business loan and the rate you’re offered. Banks and NBFCs prefer businesses with consistent cash flow and stable earnings, as these factors reduce the risk of default. For new businesses, lenders may charge higher interest rates to compensate for the added risk.
Interest Rates vs Lending Yields and Risk Management
When comparing interest rates, it’s essential to understand how lenders manage risk. A higher rate reflects the higher risk that lenders face in offering loans without collateral. This is particularly important for banks and NBFCs because they need to balance lending yields with the risk of default. The business loan interest rates offered by lenders are designed to generate a return that justifies the risk taken on by the lender.
Interest Rates as Compensation for Risk
Since unsecured loans don’t require any collateral, they are inherently riskier for lenders. To offset this risk, they increase interest rates on unsecured business loans. Lenders may also impose stricter eligibility criteria or offer smaller loan amounts for businesses with a less-than-perfect credit history.
In contrast, secured loans, which are backed by collateral, usually have lower rates because the lender has a fallback option if the borrower defaults. However, unsecured loans provide flexibility for business owners who may not have assets to pledge as security.
Conclusion
The current interest rates for unsecured business loans in India vary significantly depending on the lender, the business owner’s eligibility, and the loan amount. Generally, these rates range from 10.5% to 35% per annum, with factors such as credit score, business turnover, and loan tenure playing a critical role in determining the rate you’ll be offered.
For businesses that are unable to provide collateral, unsecured business loans offer an accessible financing option, although the interest rate tends to be higher. It is essential for borrowers to shop around, compare business loan interest rates, and assess their financial stability before applying.
If you’re looking for an unsecured business loan with competitive interest rates, consider exploring options available with Electronica Finance Limited (EFL), which offers financing solutions tailored to your specific business requirements.
FAQs
What is the current interest rate for unsecured business loans in India (2025)?
As of 2025, the interest rates on unsecured business loans in India typically range from 10.5% to 35% per annum. The specific rate you receive will depend on various factors, including your credit profile, the loan amount, and the lender you approach.
Why are unsecured business loan interest rates higher than secured loans?
Unsecured business loans have higher interest rates because they do not require any collateral. This means the lender assumes more risk compared to secured loans, where they can recover their investment by seizing the collateral in case of default.
Can I negotiate interest rates on an unsecured business loan?
Yes, it’s possible to negotiate the interest rate on an unsecured business loan. If you have a strong credit history, stable business turnover, and a good repayment history, lenders may offer you more favourable terms.
