How are interests of unsecured business loans calculated?
Offering unsecured business loans is a risky business for the lenders. They offer loan without any collateral requirements and therefore there is no security to cover their risks. In order to maintain the ease in application they usually do not follow standard rules also. Unsecured business loans mostly calculate their rate of interest according to the credit history of the business. The interests vary according to the particular circumstances also.
There are various factors that are considered for calculating the rate of interest. The interests are slightly higher for the people who have bad credibility in the market. The financial institution relies on the final accounts of the business for this purpose. Past three year’s accounting records and the frequency of meeting financial obligation is analyzed before fixing the rate of interest.
There are some banks and financial institutions that fix a standard rate of interest for all the unsecured loan options. The rate is affordable for the borrower if we talk about the value of the loan amount.
The rate of interest may also depend on the purpose for which the loan is taken. For example loans approved for fruitful projects have marginally lesser interest rate than other purpose loans. The calculation of the interest in this case is based on the project plans. Reputed firms and banks do not charge upfront fees from the borrowers for granting a loan in most of the cases.
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