What is the Business Loan?
Business loans in India run 12–24% for unsecured MSME borrowing, or 9–14% when secured against property. Fees are heavier than retail lending — processing fees of 1–3%, plus documentation and sometimes insurance.
The effective rate matters more than the headline: you pay interest on the full sanctioned amount but receive it net of fees.
Formula & worked example
Effective rate = ((Total repaid / Amount credited)1/n − 1) × 100
Worked example: ₹20,00,000 at 15% for 3 years → EMI of about ₹69,331 and total interest of ₹4.96 lakh. A 2% fee (₹40,000) means you receive only ₹19.6 lakh, pushing the effective annual rate to roughly 16.1%.
How to use this business loan calculator
- Enter the sanctioned amount, not the amount you expect to receive.
- Use the rate in your sanction letter, not the advertised "starting from".
- Add the processing fee to see the effective cost.
- Compare the effective rate against your expected return on the capital.
Smart tips
- Only borrow when the return on deployed capital comfortably exceeds the effective rate.
- Check CGTMSE-backed schemes — collateral-free MSME loans with government guarantee often price lower.
- Business loan interest is a deductible business expense, which lowers the effective after-tax cost.
- A working capital overdraft charges interest only on the amount used, unlike a term loan.
- Watch for foreclosure charges of 2–5%, common on business loans unlike floating home loans.
Frequently asked questions
What is the interest rate on business loans in India?
Typically 12–24% for unsecured MSME loans and 9–14% for loans secured against property. Rates depend heavily on turnover and credit history.
Is business loan interest tax deductible?
Yes. Interest paid on a business loan is a deductible business expense, reducing taxable profit.
What is CGTMSE?
A government credit guarantee scheme that lets banks lend to micro and small enterprises without collateral, usually at better rates.
Term loan or overdraft for working capital?
An overdraft charges interest only on the amount used, making it better for fluctuating needs. Term loans suit fixed, one-time investments.
Want the theory behind the numbers? Read our business loan guides on the Money Blog.