The business loan rates and interest rate you’ll pay will depend on the loan and type of lender you have. However, on average, credit union and bank installment loans typically offer interest rates in the low single digits. Online and alternative lenders may offer a faster and easier funding and application process, yet their interest rates may be higher. In either instance, your personal and business credit history, among other factors, will play a large part in whether you get a good interest rate on a business loan.
Where Can I Find Today’s Business Loan Interest Rates?
Because there are numerous commercial lenders offering business loans, there is no single place where you can find today’s interest rates. You may need to apply for a loan to get an idea of the rates you qualify for, especially when working with traditional lenders. Some online lending services will prequalify you based on a soft credit pull to give you an idea of their interest rates before applying.
Average Interest Rates Based on Loan Type
You can get a better idea of what a reasonable interest rate on a business loan looks like if you know the average business loan rates on various loan types. On the whole, traditional, long-term financial products like bank or credit union loans have more affordable average interest rates. In contrast, merchant cash advances (MCAs) and online lenders that provide short-term loans are generally pricier. The following are average business loan interest rates for more common financing products, including the average rate range for the government-backed Small Business Association (SBA) 7(a) loan program:
- Online financing and business loans have rates that can range from 7% up to 100%.
- Traditional loan rates from banks and credit unions are usually lower than online lenders, with interest rates averaging from 2% to 13%.
- SBA 7(a) loans may range from 5.5% to 11.25%. Though SBA and traditional loans offer the most affordable interest rates, they require more qualifications and are the slowest to fund.
- Invoice financing is a way to borrow money against customer-owned money, and rates can average between 13% and 60%.
Annual Percentage Rate (APR)
Ensure you understand your loan’s annual percentage rate (APR) to give yourself a more thorough understanding of your loan’s true cost. The APR includes interest and any business loan fees associated with your business loan combined into a single number. Some lenders may advertise lower annual interest rates; however, added fees could make the loan more expensive than a lender offering a higher rate with no additional charges.
What Impacts the Interest Rate on a Business Loan?
Banks will calculate your business loan interest rate based on the strength of your company’s financials and other factors. A variety of factors may impact the interest rate on your business loan, including your personal credit scores.
Business Type
Considering that some businesses are considered riskier than others, banks and credit unions may factor this when setting a loan interest rate. A business is considered risky if a strong chance of financial failure exists or the industry it operates in is high risk because of working conditions or other factors.
Your Company’s Credit History
If your firm has an established credit history with decent scores, it will likely qualify for lower business loan interest rates.
Financing Types
Different interest rates, including fixed and variable interest rates, are associated with different loan types. For example, business credit cards often have a higher rate than a long-term installment loan.
How Long the Business Has Been Operating
Lenders may also look at how long the company has been in operation. Specific lenders refuse to lend to new firms, while others may impose a higher interest rate. Generally, an established business’s loan interest rate is lower than it is for a startup. This is because experienced companies have a lower chance of failing than a startup.
Market Interest Rates
When the Federal Reserve adjusts the interest rate that banks can borrow money at, it causes a ripple effect across the U.S. economy. As these rates rise and fall, they impact the interest rates at which small business owners may obtain a loan.
Business Finances
As part of the application process, some lenders ask for your company’s current and projected financial documents, including its cash flow statement, revenue statement, and balance sheet. A robust financial position may help your company qualify for a lower interest rate.
Your Credit History and Finances
If your business is too new and lacks a credit profile, your personal score and finances may factor into obtaining a small business loan. Many lenders require you to meet a minimum credit threshold (for example, 680 or higher) to qualify for their loan products. Also, certain banks or credit unions require you to provide a personal guarantee to cover the loan if your business can’t pay it back. Even if you’re not required to give a personal guarantee, lenders may view your poor credit history as a sign you also mismanage your business’s credit. Check your business and personal credit reports and find areas where you may be able to improve.
How to Check Your Business Credit Score
Because your business credit profile may be a determining factor in achieving a good interest rate on your loan, checking your credit score may be a good idea. Like your personal credit score, several credit reporting agencies use varying methods to calculate your score. The primary business credit bureaus include:
- Equifax Small Business
- Experian Business
- Dun & Bradstreet (D&B)
The Small Business Administration (SBA) also provides resources and loans to help businesses understand and improve their credit scores.
Each agency can issue you a copy of your business credit report along with one or more business credit scores. Unlike your personal credit profile, there are no laws that enable a company to get a free credit check.
