If you run a shop, a small factory or a service business, the first thing you want to know before borrowing is simple: what will this loan really cost me?
Business loan interest rates can look very different from one lender to the next, and the number in the advertisement is rarely the whole story. Fees, GST, prepayment terms, and the type of rate all change what you finally pay.
This guide compares what banks and NBFCs publish, explains what decides your rate, shows what the October 2026 repo rate hike means for you, and walks through the real cost with worked examples.
What Does the Interest Rate on a Business Loan Mean?
Definition: The interest rate is the yearly cost a lender charges on the money you borrow, shown as a percentage of the outstanding loan amount. Fees are separate and come on top.
Most term loans from banks and NBFCs use the reducing balance method. You pay interest only on the principal that is still outstanding, so the interest part of each EMI falls over time.
Reducing balance rate vs flat rate
A flat rate charges interest on the full original amount for the whole tenure. That makes it much costlier than the number suggests.
Here is a calculation to show the gap. Take a loan of ₹10 lakh for 3 years at 10% flat:
- Interest is ₹3 lakh, so you repay ₹13 lakh in total.
- The EMI is about ₹36,111.
- A reducing balance loan with the same EMI works out to roughly 18% a year.
So a 10% flat quote is not comparable with a 10% reducing balance quote. Always ask which one you are being offered.
Interest rate, APR and total cost
The annual percentage rate (APR) combines the interest rate with the fees a lender charges. RBI requires a Key Fact Statement (KFS) for new retail and MSME term loans sanctioned on or after 1 October 2024. It must include an APR computation sheet and the full repayment schedule, and the APR must cover all charges levied by the lender. Ask for it before you sign anything.
Typical Business Loan Rates in India by Lender Type
There is no single rate for everyone. The table below shows what four lenders publish on their own pages. It is a snapshot for comparison, not an offer.
| Lender | Rate as listed | Processing fee as listed | Loan size as listed | Minimum CIBIL and vintage stated |
|---|---|---|---|---|
| HDFC Bank | 10.75% to 22.50% p.a. | Up to 2% | Check the bank | Not stated on its fee page |
| Bajaj Finance | 14% to 23.50% p.a. | Up to 4.72% including taxes | ₹2 lakh to ₹80 lakh | 650, and 3 years in business |
| Tata Capital | 12% to 30% p.a. for the self-employed | Up to 3% plus taxes | Not stated on this page | About 675 (FAQ), vintage not stated |
| DMI Finance | Starting from 15.99% p.a. | See its schedule of charges | ₹30,000 to ₹25 lakh | 700, and 24 months in business |
Treat a ‘starting from’ rate with care. DMI Finance’s other pages show 18% to 24.90% for some loan sizes, and Tata Capital’s own FAQ gives narrower ranges than the body of its page. The rate you receive depends on your profile.
Bank loans
Private banks such as HDFC Bank publish a rate range, which is the maximum and minimum before your profile is assessed.
For floating-rate MSME loans, banks price against an external benchmark. Union Bank of India’s MSME rate sheet, for example, shows the rate as the benchmark plus a spread that depends on loan size, rating, and security. Check your bank’s current spreads on its own site.
NBFC and digital lender loans
NBFCs usually decide faster and ask for less paperwork. The trade-off is that published ranges often run higher. Tenures are typically shorter: 12 to 36 months at DMI Finance, 12 to 60 months at Tata Capital and 12 to 96 months at Bajaj Finance, according to their pages.
Government-backed schemes
Government schemes do not fix a single interest rate. Lenders set the rate, but the schemes can remove the need for collateral.
- Mudra (PMMY): Shishu covers loans up to ₹50,000, Kishore up to ₹5 lakh, Tarun up to ₹10 lakh and Tarun Plus up to ₹20 lakh. Tarun Plus is for entrepreneurs who have already repaid a Tarun loan. Loans up to ₹20 lakh carry guarantee cover under CGFMU. Read more in our Mudra loan scheme guide.
- CGTMSE: This guarantee lets member lenders give collateral-free loans to eligible micro and small enterprises. An Udyam registration number is needed to obtain the cover. The maximum covered amount has been revised over time, so check the current limit on the CGTMSE website. Lenders can pass the guarantee fee on to you. Bajaj Finance, for example, lists up to 0.885% including taxes for the first 12 months.
For a wider look at schemes, see our MSME loan schemes article.
How the October 2026 Repo Rate Hike Affects Business Loan Interest Rates
On 7 October 2026, the RBI’s Monetary Policy Committee raised the repo rate by 25 basis points, from 5.25% to 5.50%. It is the first increase since February 2023. The committee also changed its stance from neutral to calibrated tightening. The next meeting is scheduled for 2 to 4 December 2026.
Floating-rate loans
Banks must link floating-rate loans to MSMEs to an external benchmark, such as the repo rate. The bank chooses the spread, and the rate must reset at least once every three months. A floating-rate bank loan can therefore move after a hike once your next reset date arrives.
Check three things in your agreement: the benchmark, the spread, and the reset date.
Fixed-rate loans
If your rate is fixed, your EMI does not change when the repo rate moves. New quotes can still be priced differently, because a lender’s cost of funds can change after a rate move.
Fixed or floating: which suits you?
| Fixed rate | Floating rate | |
|---|---|---|
| EMI | Same through the tenure | Can rise or fall at each reset |
| Planning | Easier cash flow planning | Needs a buffer for changes |
| Commonly seen with | Short-tenure NBFC and digital loans | Bank loans linked to a benchmark |
| Prepayment | Charges may apply, check your letter | Barred for many business loans sanctioned from 1 January 2026 (see below) |
Nobody can predict the next rate move with certainty. Choose the structure your cash flow can handle if rates go either way.
What Decides Your Business Loan Interest Rate?
CIBIL score
A CIBIL score runs from 300 to 900. Lenders publish different minimums: 650 at Bajaj Finance, about 675 at Tata Capital, and 700 at DMI Finance. Meeting the minimum gets you considered. A stronger score generally helps you reach the lower part of a lender’s range, while a weaker one can mean a higher rate or a rejection. See how to improve your CIBIL score before you apply.
Business vintage
Lenders want proof that your business has survived a few cycles. Bajaj Finance asks for at least 3 years and DMI Finance for 24 months. DMI Finance does not lend to startups or newly incorporated businesses.
Turnover, profit and cash flow
Lenders look at bank statements, ITR, and GST returns to judge repayment capacity. DMI Finance, for instance, asks for 6 to 12 months of bank statements along with PAN, Aadhaar, and business registration proof. Keep your papers consistent. Our list of documents required for a business loan helps you prepare.
Secured or unsecured
Collateral lowers a lender’s risk, and Tata Capital’s page notes that secured loans attract lower rates than unsecured ones. The risk moves to you, because a default can cost you the asset. Read our guide on secured business loans before you pledge anything.
Loan amount and tenure
A longer tenure lowers your EMI but raises the total interest. The tables later in this article show by how much.
Industry and relationship
Tata Capital says industry type and a long relationship with the lender can also influence pricing. Existing customers with a clean record sometimes get pre-approved offers, which Bajaj Finance mentions on its page.
Business Loan Rates for Different Borrowers
- Small shop owners and traders: You usually need short-tenure money for stock. Compare a working capital loan with a term loan, and watch the processing fee on small amounts.
- Manufacturers and wholesalers: Larger tickets often come with collateral and lower rates. Match the tenure to the life of the machinery or the stock cycle.
- Service businesses and freelancers: Your bank credits and ITR carry the most weight, because you may have no assets to pledge.
- Women entrepreneurs: Some lenders run special programmes, but a programme does not guarantee a lower rate. Ask for the rate in writing.
- Businesses under two years old: Many NBFCs and banks need 2 to 3 years of vintage. Look at Mudra, CGTMSE-backed loans through member lenders, or a secured loan. Our startup business loan options guide covers this.
- Borrowers with a low CIBIL score: Fix errors in your report, clear overdue amounts, apply for a smaller amount or add a co-applicant or collateral. Avoid applying to many lenders at once.
Charges Beyond the Interest Rate
The interest rate is only one line on the bill. These charges come from the lenders’ own pages.
| Charge | Tata Capital | Bajaj Finance | HDFC Bank |
|---|---|---|---|
| Processing fee | Up to 3% plus taxes | Up to 4.72% including taxes | Up to 2% |
| Documentation | ₹1,999 | Not listed separately | Not stated |
| EMI bounce | ₹600 per instance | ₹1,500 per bounce | Not stated |
| Delay in payment | 3% per month on the defaulted amount (36% a year) | 36% a year per instalment | Not stated |
| Prepayment or foreclosure | 4.5% of principal outstanding, net of taxes | Up to 4.72% including taxes | Not stated |
| Stamp duty | At actuals | As per state law | As per state law |
Check whether a fee is quoted with or without GST. At 18% GST, Tata Capital’s 3% processing fee becomes about 3.54%, and its 4.5% foreclosure charge becomes about 5.31%. Bajaj Finance’s 4.72% is what 4% becomes after 18% GST. Put every offer on the same footing before you compare.
Also look for:
- Loan cancellation charges
- Annual maintenance charges on flexi limits (Bajaj Finance lists them for its flexi variants)
- Credit guarantee fees on guaranteed loans
- Interest for the broken period between disbursal and the first EMI
Can You Prepay a Business Loan Without a Penalty?
The RBI’s Pre-payment Charges on Loans Directions, 2025 apply to loans sanctioned or renewed on or after 1 January 2026.
- Commercial banks (excluding small finance banks, regional rural banks and local area banks), Tier 4 urban co-operative banks, NBFCs in the upper layer and All India Financial Institutions cannot charge prepayment fees on floating-rate loans to individuals and MSEs for business purposes.
- Several other lender categories, including small finance banks, regional rural banks and NBFCs in the middle layer, are also barred on floating-rate loans up to ₹50 lakh.
- For loans that mix fixed and floating rates, the rule depends on whether the loan is floating at the time you prepay.
- Lenders must state clearly in the sanction letter and agreement whether prepayment charges apply.
This does not mean every loan is free of charges. Fixed-rate loans and loans sanctioned before 1 January 2026 can still carry them. Check your sanction date, your rate type, and your lender category, and read our business loan repayment tips before you decide to close early.
How to Calculate Your Business Loan EMI
The EMI formula is:
EMI = P × r × (1 + r)^n ÷ [(1 + r)^n – 1]
Here P is the loan amount, r is the monthly rate (annual rate divided by 12), and n is the number of months. You can skip the maths with a business loan EMI calculator.
The examples below are calculations on a reducing balance basis, rounded. They are not lender offers.
How the rate changes your cost
Loan of ₹10 lakh for 36 months:
| Rate (p.a.) | EMI (approx.) | Total repayment | Total interest |
|---|---|---|---|
| 12% | ₹33,214 | ₹11.96 lakh | ₹1.96 lakh |
| 16% | ₹35,155 | ₹12.66 lakh | ₹2.66 lakh |
| 20% | ₹37,163 | ₹13.38 lakh | ₹3.38 lakh |
| 24% | ₹39,236 | ₹14.12 lakh | ₹4.12 lakh |
Every 4 percentage points adds roughly ₹70,000 to ₹75,000 in interest on this loan.
How tenure changes your cost
Loan of ₹10 lakh at 14% a year:
| Tenure | EMI (approx.) | Total interest (approx.) |
|---|---|---|
| 24 months | ₹48,017 | ₹1.52 lakh |
| 36 months | ₹34,178 | ₹2.30 lakh |
| 60 months | ₹23,268 | ₹3.96 lakh |
The longer tenure eases your monthly cash flow, but it costs you more overall.
Why a Lower Rate Is Not Always Cheaper
Headline business loan interest rates tell only part of the story. Fees can reverse the order of two offers.
This comparison uses assumed fees, so treat it as an illustration. Loan of ₹10 lakh for 24 months:
| Item | Offer 1 | Offer 2 |
|---|---|---|
| Interest rate | 14% | 16% |
| Processing fee including GST | 4.72% (₹47,200) | 0.59% (₹5,900) |
| EMI (approx.) | ₹48,017 | ₹48,961 |
| Total interest (approx.) | ₹1.52 lakh | ₹1.75 lakh |
| Interest plus fee | ₹1.99 lakh | ₹1.81 lakh |
The 14% offer costs about ₹18,000 more in total. If the fee is deducted before disbursal, you also receive less cash than you applied for. Compare offers on the same amount, the same tenure and the same list of charges.
Must Read: Home Loan Calculator: Calculate Your EMI, Save on Interest, and Plan Smarter
Is the Loan Worth It? Break-even and Tax
A simple break-even test
Ask whether the loan will earn more than it costs. Here is an illustration. A trader borrows ₹5 lakh for 24 months at 16% to buy extra stock. The EMI is about ₹24,480 and the total interest is about ₹87,500, which is roughly ₹3,650 a month. If the extra stock adds less than that in monthly gross profit, the loan is eating into your margin.
Also keep a cushion. A sales dip should not stop you from paying the EMI, because penal charges and a damaged CIBIL score cost more than the interest itself.
Is the interest tax deductible?
Interest on money borrowed for business purposes is generally deductible as a business expense. Under the old Income Tax Act, 1961 this was section 36(1)(iii), and EY notes that it corresponds to section 32(b) of the Income-tax Act, 2025. The money must actually be used for the business. If your marginal tax rate is 25%, an 18% interest cost is about 13.5% after tax. Your CA can confirm how this applies to your case.
How to Get a Lower Interest Rate on a Business Loan
- Check your CIBIL report and fix errors before you apply.
- Keep bank statements, ITR and GST filings consistent.
- Borrow the amount you need, not the maximum you qualify for.
- Choose a shorter tenure if your cash flow allows it.
- Offer collateral only if you can afford to lose it.
- Register under Udyam if you are eligible, since it opens scheme access.
- Collect at least three offers and compare the total cost. Avoid applying everywhere at once, because each hard enquiry can lower your score.
- Ask for a lower rate or a balance transfer when your profile improves. A switch pays off only when the rate gap outweighs the fees and any prepayment charge.
How to Compare Business Loan Offers
- Ask each lender for the Key Fact Statement.
- Confirm whether the rate is reducing balance or flat.
- Note whether the rate is fixed or floating, and the reset terms if floating.
- List every fee, with and without GST.
- Check the prepayment and penal terms.
- Compare the APR and the EMI side by side.
Common Mistakes Borrowers Make
- Comparing only the headline rate
- Ignoring processing fees and GST
- Mixing up flat and reducing balance rates
- Borrowing more than the business can repay
- Applying to many lenders in a week
- Missing EMIs, which triggers penal charges and hurts your score
- Signing without reading the sanction letter and KFS
FAQs: Business Loan Interest Rates
What is the interest rate on a business loan in India?
It depends on the lender and your profile. HDFC Bank lists 10.75% to 22.50% a year. Bajaj Finance lists 14% to 23.50%, DMI Finance starts at 15.99%, and Tata Capital lists up to 30% for the self-employed. Your final rate is set after a credit and business assessment.
Is a bank or an NBFC cheaper for a business loan?
On published ranges, banks often start lower, but they may ask for more documents or collateral for larger loans. NBFCs usually decide faster at higher rates. Cheaper depends on the total cost for your amount and tenure, so compare APR and fees, not just the rate.
How does my CIBIL score affect my rate?
A higher score generally gets you closer to a lender's lower rate. Lenders also set minimums: 650 at Bajaj Finance, about 675 at Tata Capital and 700 at DMI Finance. Below the minimum, you may face a higher rate or a rejection.
What is the difference between a flat rate and a reducing balance rate?
A flat rate charges interest on the original amount for the whole tenure. A reducing balance rate charges it only on the outstanding principal. A 10% flat rate on a 3-year loan is roughly equal to 18% on a reducing balance.
Will the repo rate hike increase my business loan EMI?
It depends on your rate type. A floating-rate bank loan linked to an external benchmark can change at its next reset, which happens at least every three months. A fixed-rate loan keeps the same EMI. Check your agreement for the benchmark and reset date.
What charges apply apart from the interest rate?
Expect a processing fee, documentation and stamp duty, GST on fees, EMI bounce and late payment charges, and possibly prepayment or guarantee fees. Lenders list these differently, some with taxes and some without, so ask for the total.
Can I prepay my business loan without a penalty?
For loans sanctioned or renewed from 1 January 2026, RBI bars prepayment charges on floating-rate business loans to individuals and MSEs for many lender categories. Fixed-rate and older loans may still have charges. Your sanction letter must state whether they apply.
How can a new business get a loan at a reasonable rate?
Many lenders want 2 to 3 years of vintage, so look at Mudra loans, CGTMSE-backed collateral-free loans through member lenders, or a secured loan. Build a clean banking record and keep your Udyam registration ready.
Is the interest on a business loan tax deductible?
Interest on borrowed money used for business is generally deductible as a business expense. It was section 36(1)(iii) under the 1961 Act and corresponds to section 32(b) of the Income-tax Act, 2025, according to EY. Confirm the treatment with your CA.
What is a Key Fact Statement and why does it matter?
It is a standard summary of your loan terms. For new retail and MSME term loans sanctioned on or after 1 October 2024, lenders must give it with an APR computation and a repayment schedule. It is the best document for comparing offers.
Conclusion
Business loan interest rates in India are a range, not a single number, and the right lender depends on your profile, your loan size and your cash flow. Before you sign, look beyond the headline rate to the fees, the rate type, the prepayment terms and the APR.
Your next step is simple. Check your CIBIL report, collect at least three Key Fact Statements, and run the numbers through an EMI calculator. Then check your eligibility with our business loan eligibility criteria guide.
Key Takeaways
- Published ranges differ widely: HDFC Bank 10.75% to 22.50%, Bajaj Finance 14% to 23.50%, DMI Finance from 15.99%.
- RBI raised the repo rate to 5.50% on 7 October 2026. Floating-rate bank loans can move at their next reset.
- A 10% flat rate on a 3-year loan is roughly an 18% reducing balance rate.
- Fees can make a lower-rate loan cost more. Normalise GST before comparing.
- Many floating-rate business loans sanctioned from 1 January 2026 cannot carry prepayment charges.
- Always ask for the Key Fact Statement and compare APR.
Sources
- Tata Capital, business loan rates and charges page: https://www.tatacapital.com/business-loan/rates-and-charges.html
- Bajaj Finance, business loan rates and charges page: https://www.bajajfinserv.in/business-loan-interest-rate-and-charges
- DMI Finance, business loan rate page: https://www.dmifinance.in/business-loan/business-loan-interest-rate/
- HDFC Bank, business loan rates and charges page: https://www.hdfc.bank.in/business-loan/interest-rates-and-charges
- Union Bank of India, MSME rate of interest sheet: https://www.unionbankofindia.bank.in/pdf/Rate-of-Interest-for-MSME-Loans.pdf
- RBI, Pre-payment Charges on Loans Directions, 2025: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12878
- RBI, Key Fact Statement circular dated 15 April 2024 (RBI/2024-25/18) and Interest Rates on Advances Directions, 2025: rbi.org.in
- RBI Monetary Policy Committee resolution, 7 October 2026: rbi.org.in
- PIB, Mudra loan limit raised to ₹20 lakh: https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/oct/doc20241029426401.pdf
- EY Tax Alert on section 36(1)(iii) and the Income-tax Act, 2025: https://www.ey.com/en_in/technical/alerts-hub/2026/05/sc-permits-interest-deduction-on-borrowed-funds-advanced-to-sister-concern-as-business-expenditure
- CGTMSE guarantee details: cgtmse.in
Disclaimer: This article is for general information only and is not financial, legal, or tax advice. Interest rates, fees, eligibility rules, and regulations change often. Verify current terms with the lender, the RBI, and the relevant official source before you make any borrowing decision.
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