banner image What is the Interest Rate on MSME Loan

What is the Interest Rate on MSME Loan?

August 21, 2023 • 3398 views

Micro, Small, and Medium Enterprises (MSMEs) are crucial in a country's economic growth and development. To support the growth of these enterprises, financial institutions offer MSME Loans with competitive interest rates. In this article, we will explore the factors that influence the interest rates on MSME Loans, how to calculate them and provide valuable tips to reduce interest rates. Additionally, we will discuss how Poonawalla Fincorp's Business Loan can cater to the financial needs of MSMEs.

How to Calculate MSME/SME Loan Interest Rate?

Calculating the interest rate on MSME Loan involves several components. The most common method used by lenders is the reducing balance method, where interest is calculated on the outstanding loan balance. The formula to calculate the interest rate on an MSME Loan is as follows

Interest Payable = Principal Amount × Interest Rate × Time Period

For example, an MSME Loan has a principal amount of Rs.10,00,000, an interest rate of 12% per annum, and a tenure of 2 years. The interest payable would be

Interest Payable = Rs. 10,00,000 × 12% × 2 = Rs. 2,40,000


Types of Fees

Applicable Charges

Rate of interest

15% to 28% p.a.*

Processing fees

Up to 3% plus applicable taxes

Bounce charges

Rs.1,000 per bounce plus applicable taxes

Late Payment Charges

3% per month

Loan Amount

Rs.1 Lakh to Rs.50 Lakhs

Lowest EMI per month

Starting from Rs. 3,467* per Lakh for 36 months

Loan Tenure

6 - 36 months

Prepayment/Foreclosure Charges

0%* If paid from own sources

Stamp Duty

At actuals (as per state)

Penal Interest

3% monthly on the defaulted EMI amount


Factors Affecting Interest Rate of MSME/SME Loan

Several factors influence the interest rate of MSME Loans. Understanding these factors can help MSMEs negotiate better terms and secure competitive interest rates. Some key factors include


Lenders assess the creditworthiness of MSMEs based on their credit history, repayment track record, financial statements, and CIBIL Score. A strong credit profile can lead to lower interest rates.

Business Stability

The stability and longevity of the business also impact the interest rate. Well-established and profitable MSMEs are perceived as lower risk and can negotiate better terms.

Loan Amount and Tenure

The loan amount and tenure directly affect the interest rate. Longer tenures and Higher loan amounts may lead to higher interest rates.

Market Conditions

Prevailing market conditions, including inflation rates, monetary policies, and economic indicators, can influence interest rates on MSME Loans.

Tips to Reduce Interest Rates on MSME/SME Loan

Reducing the interest rates on MSME Loans can help businesses save money and improve their financial position. Here are some tips to consider

Maintain a Good Credit Profile

Regularly monitor and maintain a strong credit profile by making timely repayments, reducing outstanding debts, and resolving any credit issues. This can improve creditworthiness and help negotiate lower interest rates.

Improve Business Financials

Strengthen the financial position of the business by demonstrating steady revenue growth, profitability, and efficient financial management. Lenders are more likely to offer competitive rates to financially stable MSMEs.

Compare Multiple Lenders

Shop around and compare loan offers from different lenders. This allows MSMEs to assess the interest rates, repayment terms, and additional benefits offered by various financial institutions, ensuring the best possible deal.

Offer Collateral or Guarantees

Providing collateral or personal guarantees can reduce the perceived risk for lenders, leading to lower interest rates on MSME Loans.

Also Read - MSME Loan: Why it is an Ideal Choice for Small Business Owners


Securing an MSME Loan at a favorable interest rate is crucial for the growth and sustainability of small and medium enterprises. By understanding the calculation methods, considering the factors influencing interest rates, and implementing effective strategies, MSMEs can reduce interest costs and improve their financial position. Poonawalla Fincorp's Business Loan offers tailored financial solutions to support the diverse needs of MSMEs, with competitive interest rates, flexible repayment options, and quick processing. Explore Poonawalla Fincorp's Business Loan to fuel the growth and success of your MSME.


  • What is the current MSME Loan interest rate?

The current MSME Loan interest rate varies depending on the lender, the borrower's creditworthiness, and prevailing market conditions. It is recommended to check with different financial institutions or lenders to get the most up-to-date and competitive interest rates for MSME Loans.

  • What are the 3 types of MSME Loans?

The three types of MSME Loans are

  • Term Loan: A Term Loan provides a lump sum amount to MSMEs for a fixed term, which is repaid in regular installments.
  • Working Capital Loan: This type of loan helps MSMEs manage their day-to-day operational expenses, such as inventory, wages, and overhead costs.
  • Machinery/Equipment Loan: MSMEs can obtain machinery or equipment loans to finance the purchase or upgrade of machinery and equipment necessary for their business operations.


We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Business Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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