How Interest Rates Affect Business Loan Repayment, DSCR and Project Feasibility
Interest rates play an important role in deciding whether a debt-funded business project remains financially comfortable or becomes difficult to manage. A change in borrowing cost can directly affect loan repayment, cash flow availability, profitability and the overall feasibility of a project. When a business takes a loan for setting up a new plant, expanding operations, purchasing machinery or starting a new venture, the interest rate becomes a critical assumption in the financial model. A higher interest rate increases finance costs, reduces cash available after debt servicing and can lower the Debt Service Coverage Ratio (DSCR). This is why a detailed project report and financial feasibility study should not consider interest rates as an isolated figure. The impact of interest should be evaluated along with project cost, debt structure, repayment period, projected revenue, working capital requirements and cash flow projections. Why Are Interest Rates Important in Project Feasibilit...