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What are the current business loan interest rates?
|
Loan type |
Approximate annual interest rate |
|
|---|---|---|
|
bank small business loan |
5.89% to 12.23% |
|
|
online term loan |
6%～99% |
|
|
SBA loan |
||
|
business credit line |
10%～99% |
|
|
equipment financing |
4%～45% |
|
|
Invoice factoring or financing |
10%～79% |
|
|
Seller cash advance |
40%～350% |
|
|
*Prices are calculated using the current prime rate of 8.5%. Updated in March 2024. |
||
What is the interest rate on a business loan?
The interest rate on a business loan is basically the amount that the lender charges for the funding. Interest is usually expressed as a percentage of the amount borrowed. The higher the interest rate, the more money is added to the original loan amount.
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lender. Bank loans to small and medium-sized businesses usually have the lowest interest rates, but are subject to stricter screening criteria. Online lenders have looser eligibility requirements but higher costs. Interest rates for some types of online business loans range from 6% to 99%.
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your financial situation. Lenders will consider traditional business loan requirements, such as your credit score, business hours, and business income. If you are considered a risky borrower, the interest rate you are offered will likely be higher.
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your collateral. Lenders may offer better interest rates if you secure your loan with business collateral, such as inventory or real estate. This reduces risk for lenders as these assets can be seized due to non-payment.
Other factors that can affect the interest rate on a business loan include market conditions, the amount borrowed, and the length of the repayment term.
Are small business loans fixed or variable interest rates?
Small business loans may have fixed or variable interest rates. Fixed-rate loans make it easier to plan your repayments because the interest rate and monthly repayments remain the same over the life of the loan.
Adjustable rate loans may have lower initial interest rates than fixed rate loans, but their interest rates can rise or fall because they are tied to an underlying index that moves with the market. This means your payments can fluctuate, which can make budgeting difficult.
What are the fees for business loans?
Business loan fees are often unavoidable and can increase the amount you borrow. Small business lenders charge upfront fees of varying amounts depending on factors such as the size of the loan, length of repayment period, credit score, and type of business loan.
Common fees included in small business loans include:
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Outgoing fee. An upfront fee charged for processing a new loan.
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Underwriting fee. Fees collected by underwriters for reviewing and verifying documents you provide, such as financial statements, personal bank statements, credit reports, and tax returns.
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closing costs. Fees associated with repaying a loan, such as loan packaging fees, commercial real estate valuations, and business valuations.
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SBA loan guarantee fee. SBA loans typically have a guarantee fee of 0% to 3.75%, depending on the size of the loan. Annual service fees range from 0% to 0.55% depending on loan size. SBA evaluates and updates these fees each fiscal year..
How to compare business loan interest rates
The best way to compare business loan rates is the annual percentage rate. This includes not only the interest rate but also the loan fees mentioned above.
However, it's important to note that not all lenders use APR when estimating the cost of a product. Some lenders may offer a simple interest rate that is charged monthly or weekly and does not include loan fees.
You should always try to calculate these types of interest rates into APR to get a better idea of how much your loan will cost. APR also makes it easier to compare products from different financial institutions to ensure you're getting the best deal for your business.
Business loan interest rate example
For example, let's say you have excellent credit and are approved for a $50,000 business loan with a term of five years and an annual interest rate of 15%. On this loan, you'll pay $1,190 per month for a total of $21,370 in interest.
