Picture this – your business is growing, and you’ve decided to expand, but you need a business loan to do that. Based on your financial needs, current finances, and expansion plans, it may be difficult for you to find one lender who is willing to lend you your entire requested loan amount. In this case, you decide to break up the funding into stages and get it from multiple lenders.
But how is your business loan interest rate impacted when you already have a live business loan and you apply for another one? Let’s find out.
What do I do if I need another business loan?
There are multiple scenarios where you may find yourself in a situation where you’re already repaying a loan (also known as a live loan), but you need more funding to invest in some other part of your business or another business venture altogether.
In this case, your first option is applying for a top-up on your live loan with your current lender. Your second option is to apply for another business loan altogether, either with your existing lender or with a lender with who you do not have a pre-existing relationship.
If you find yourself in need of additional business finance, do remember that the terms of this loan may be slightly different from the terms of the business loans you are currently paying back.
There is another scenario where the loan amount you need may be too high, and one lender is unable to take on the entire risk exposure. So, you’ll need to approach multiple lenders to get your desired funding together. This is called loan syndication.
Learn more about loan syndication here.
Will my interest rate go up if I apply for another business loan?
If you already have a live loan and need additional business funding, the interest rates of the new business loan may differ from the current ROI you’re paying. The interest rate depends on how your business is doing, your repayment history, who you apply with, and what collateral you offer. Below are a few situations you can find yourself in:
| Your business is overleveraged | Your business is not overleveraged |
|---|---|
| If your business is overleveraged, meaning your business margins are lower than the EMIs you owe for all your live loans, there may be very few lenders willing to give you another business loan. For example, your business makes Rs. 1Cr in total sales annually. Your business margins are 10%, and your EMI dues for the year are 15 Lakhs. With these financials, your business will be considered overleveraged because what you owe your creditors (Rs. 15 Lakh) is higher than what your business is making in one year (Rs. 10 Lakh). So, if this applies to your business, try to shift gears and focus on improving your business financials by either scaling down your business or reworking your business plan to efficiently use the resources at your disposal right now. | If your business is not overleveraged and you’re eligible for a business loan with a top tier lender who has a large enough SME loan book, the interest rate for the additional loan could end up being lower than the ROI of your live loans. This is because these top tier lenders operate on fixed interest rate brackets, and the terms of your past loans have little impact on their credit assessment. |
| Alternatively, depending on the health of your business financials, some lenders may be willing to lend to your business, but in this case, the interest rate they will offer you for the loan may be higher than the rate you are currently paying. | Based on your business financials and other factors, if you are eligible for a business loan with a digital lender, then the loan terms and interest rate they offer you may be closer to the ROI of your current live loans. These lenders use your credit history, including data from your live loans, to determine your creditworthiness and your ability to take on risk. That is why they use the assessments made by your current lender as a guide to help their credit assessments. |
So, when you have live loans and wish to get another loan, the interest rate of the additional business loan may or may not be higher than the interest rate you’re currently paying. Lenders decide the interest rate they offer you based on their credit policy and your business circumstances.
What factors do lenders consider when determining my business loan interest rate?
Lenders make their decision to lend and what loan terms to offer based on the risk associated with lending to the borrower. To determine the risk, they look at factors such as:
- Your recent EMI payments
- Your credit history
- Your last 6 months of sale
- Your bank credits
- Your business financials
- Your business vintage
- Your tax documents
Based on these factors, they will decide whether to lend to you or not and what interest rate to offer.
Learn more about how lenders decide your interest rate here.
What business loan interest rates can CreditEnable get me?
The interest rates our lender partners offer eligible SMEs are dependent on the factors mentioned above, like your business financials, EMI repayment history, business vintage, last 6 months of sale, etc.
We have helped some SMEs get business loans at the following interest rates:
| Business Loan Type | Interest Rate Range |
|---|---|
| Unsecured Business Loan | Starting at 14% |
| Machinery Loan | Starting at 11% |
| Secured Business Loan | Starting at 8%+ |
| Loan Against Property | Starting at 8%+ |
| Working Capital Loan | Starting at 8%+ |
When you check your business loan eligibility using our technology platform, we’ll assess your business based on the information you share with us and match you with the lender more appropriate for your funding needs.
The interest rate our lender partner offers you will be based on the health of your business, your credit profile (including previous repayment history), and other business circumstances.
Check my business loan eligibility today.
Conclusion
If your business is not overleveraged and you need additional business funding, the first step is approaching your current lender for the additional funding. If you’ve been a responsible borrower, you should be able to get extra funding from them.
If you approach a different lender for the additional business funding, the loan terms and interest rates they offer you may be higher or lower than the current ROI you are paying on your live loans. Interest rate is a subjective matter that varies from lender to lender, and borrower to borrower. When you apply for a business loan, the lender will consider your financials and credit history, among other things, to determine what interest rate to offer you.
If, on the other hand, your business is overleveraged, you may find it difficult to find a lender willing to lend to you, or the lender may offer you a business loan at a higher interest rate than your current ROI.
Business Loans. Enabled Simply.