Navigating MSME Loan Interest Rates to Finance Small Business Growth

February 7, 2024
Updated on

The Micro, Small, and Medium Enterprises (MSME) sector is a powerhouse of the economy, driving growth and creating employment for millions. It contributes to around 30% of the country’s GDP, but individually, MSME businesses often operate on a fairly tight budget. They have limited liquidity, relying on a steady order pipeline to keep cash flows steady. Some are reliant on seasonal trends to get their sales up and can struggle to tide over leaner periods with the limited resources they have at their disposal. This also means that if an emergency expense crops up, or they face a financial setback, an MSME can be in serious financial trouble. Often having a limited amount of capital in hand also means they can’t invest in expansion plans or buy expensive equipment required to stay competitive in their industry.

One solution to this, that many MSMEs are turning to, is to take a business loan to finance expenses and growth. While traditional lenders like banks are known to steer clear of lending to MSMEs without collateral, some fintech NBFCs in this space have devised ways to provide them with the credit they need. Kinara Capital, which is an RBI-registered fintech NBFC, employs proprietary Al/Ml-led decisioning to provide MSMEs with collateral-free business loans through a completely digital process. This means that as a small business owner, you can get a business loan in just 24 hours, with minimal documentation. However, before you take a loan, carefully consider all the terms and conditions and make sure that you are capable of paying it back responsibly.

An Overview of MSME Loan Interest Rate

As MSMEs are increasingly opting for loans to finance their growth plans or tide over difficult financial circumstances, it has become more important than ever to understand the nuances of an MSME loan. One of the most critical factors when taking a loan is the interest rate, as that determines how much of a premium one has to pay on top of the principal loan amount in order to close out the loan.

Understanding the interest rate calculations helps entrepreneurs know the EMI amount they would have to pay, which is critical as missed payments can attract penalties and result in a bad credit score. MSME loan interest rates can be in the form of fixed interest rates, providing stability in repayments, or variable interest rates, which are subject to market fluctuations. Recognizing the importance of MSME loan interest rates empowers MSMEs to make informed choices about lenders and products that align with their financial goals and support their long-term growth plans.

Check Current Rates and Apply

Business loan interest rates are a crucial factor in determining what your EMI amount will be. Interest rates that MSME loan apply vary from lender to lender. Kinara Capital offers business loans in the range of Rs. 1 lakh to Rs. 30 lakhs, completely free of collateral. The loan interest rates start at 24% and are calculated on a reducing rate basis, which results in lower EMIs with each repayment. Depending on the nature of the loan, the tenure can range from 6 months to 5 years.

You can avail of a Machinery Loan to finance the purchase of new or used machines, in order to scale up your production to improve the quality of your output. You can also opt for a Working Capital Loan to cover the day-to-day expenses of your business or fuel your expansion plans. Before taking a loan, make sure you understand the interest rate that will be applicable, the tenure of your loan, and the EMI you will be required to pay.

How to Calculate EMI for MSME Loan?

You can calculate the EMI amount you will have to pay each month on your MSME loan using a formula. The formula used for calculating the EMI on an MSME loan is EMI = P x r x (1+r)n/ (1 + r) n-1. Here P denotes the principal loan amount, r is the SME loan interest rate, and n is the tenure.

Here’s a step-by-step guide on how to calculate the EMI amount for an MSME loan:

  1. Convert the annual interest rate to a monthly rate: Divide the annual interest rate by 12 and multiply by 0.01 to get the monthly interest rate (r). r = Annual Interest Rate/12×100
  2. Calculate the number of monthly installments: Multiply the loan tenure in years by 12 to get the total number of monthly installments (n).
  3. Use the EMI formula: Calculate by putting the values into the EMI formula mentioned above and you’ll have your EMI amount.

To make things simple, Kinara Capital has an MSME Loan calculator on its website, which can calculate the EMI for you. Simply enter the principal amount, the interest rate, and the loan’s tenure, and you will have the EMI amount.

What is the Impact of Interest Rate on your EMI?

The EMI for MSME business loans is inextricably tied to the interest rate, and it directly influences the overall repayment amount. A higher MSME loan interest rate translates into higher EMIs, which means that businesses end up paying more over the loan tenure. The opposite is true for lower interest rates, which result in reduced EMIs.

It’s crucial to take the relationship between EMI and interest rates into consideration in the MSME business loan interest rate calculation, where even a slight variation in rates can impact the total repayment. It is important to carefully assess these rates during loan procurement in order to ensure that you have the ability to efficiently repay your loan, fostering smoother business operations and sustained growth over time.

Another aspect to consider is the interest rate calculation. At Kinara Capital, interest is calculated on a reducing rate basis. This means the interest rate applied to the outstanding loan balance decreases as the loan matures. In this scenario, borrowers pay progressively less interest over the life of the loan as the interest component in each payment gradually diminishes. As a result, you pay less interest over the life of the loan, leading to potential long-term cost savings.

How to Apply for MSME Loan at Kinara Capital?

At Kinara Capital, we have a fully online application process. There is a simple 3-step application process, followed by approval and disbursement. If you meet our MSME loan eligibility criteria, your loan could be processed in just 24 hours. Here’s a step-by-step explanation of Kinara’s loan process:

Step 1: Quick Eligibility Check

In less than a minute, you can find out if your business qualifies for the loan! You can access the eligibility check in seven different languages available on our website for a seamless experience.

Step 2: Screening

The business and the entrepreneur are screened following Kinara’s MSME loan criteria by validating the KYC and registration details.

Step 3: Document Upload

You need to submit your KYC, applicant, co-applicant, business KYC (ID and address proof), applicant PAN Card, business registration document, last 12 months’ bank statements, GST registration (if available), and business vintage proof.

Step 4: Loan Approval

Once you complete the process, your loan application will be reviewed, and if everything is in place, the Kinara officers will approve your MSME loan.

Step 5: Disbursement

Once your loan is approved, you will receive the loan amount directly in your account within 24 hours.


1. Do MSME loan interest rates vary based on the type of business or industry?

Yes, MSME loan rates can vary based on the type of business or industry. Factors like market conditions and risk profile are taken into consideration when determining the interest rate for an MSME loan.

2. What is the current MSME loan interest rate?

Kinara Capital’s current MSME loan interest rate starts at 24% and is calculated on a reducing rate basis.

3. What factors influence the interest rates on MSME loans?

A variety of factors are taken into consideration when determining the interest rate on an MSME loan. These include business vintage, financial health of the business, loan amount and tenure, order pipeline of the business, and market risks.

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