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Best Low-Interest Business Loans of May 2024

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What is a low-interest business loan?

A low-interest business loan is a business loan with rates that are lower than average interest rates. Low-interest loans are usually easiest to get when you have strong personal credit, business history or assets. But some lenders, like certain CDFIs, may have special programs that offer lower interest rates to target demographics that wouldn’t normally qualify for the lowest rates.

How do low-interest business loans work?

Low-interest business loans typically work like other business loans. You receive a lump sum of money — or a maximum draw limit, in the case of a line of credit — and you then repay what you’ve borrowed over time.

Whether you can qualify for a low-interest business loan will typically depend on the lender’s assessment of factors such as your credit history, time in business and annual business revenue. Providing collateral for your business loan may help you improve the interest rate you’re offered.
Low-interest business loans can be used for a variety of purposes from hiring staff to refinancing high-interest debt and can help borrowers who want to expand their businesses.

Pros and cons of low-interest business loans

Pros

Lower interest rates mean the cost of borrowing money is smaller so your total repayment amount and monthly payments are usually lower.

Because a low-interest loan is a cheaper form of capital, it can aid your business growth.

Cons

Can be harder to qualify for if you don’t have good credit and strong finances.

Lower rates can be riskier for lenders, so they may require higher collateral to counter the risk.

May have a shorter loan repayment period.

Types of low-interest business loans

Term loans

A business term loan provides a lump sum of cash that is repaid with interest over a set period of time. A fixed monthly payment amount is common, although some lenders may require weekly or daily payments.

Established businesses with high credit scores and strong revenue may be able to qualify for the lowest interest rates on term loans.

Business term loans can be used for a variety of purposes such as equipment and inventory purchases, working capital and debt refinancing. Banks, credit unions, online lenders and specialty finance companies offer business term loans.

Lines of credit

A business line of credit allows you to access money as you need it, up to a set limit, only paying interest on what you borrow. You typically make a minimum payment on a monthly or weekly basis that includes interest and a percentage of the outstanding balance.

Solid credit and consistent revenue can help you to get the best interest rate. Offering inventory or another asset as collateral for the credit line may allow you to get a lower rate.

Business lines of credit are often used for short-term needs, such as purchasing inventory, covering payroll expenses and managing cash-flow. They are offered by banks, credit unions and online lenders.

SBA loans

SBA loans are term loans and lines of credit that are partially guaranteed by the U.S. Small Business Administration and offered through lenders who partner with the SBA. These loans typically require monthly payments that include principal and interest.

The government guarantee of SBA loans lowers the lender risk. This lower risk is often reflected in a competitive interest rate.

SBA loans can be used for a variety of purposes including short- and long-term working capital, and the purchase of supplies, equipment and commercial real estate. Banks and credit unions are often SBA lending partners.

Microloans

Microloans are small business loans with amounts up to $50,000. They generally work like a typical term loan with funds distributed as lump sums and repayment with interest over a set period of time.

These loans are often designed to support startups and entrepreneurs in underserved communities by offering interest rates that are affordable for the borrower.

Microloans can be used for a variety of purposes such as covering daily operating expenses, inventory needs and large asset purchases such as machinery and equipment. Microloans are available through nonprofit and community organizations as well as SBA intermediaries.

Equipment loans

Equipment loans are similar to term loans except that they are specifically designed for the purchase of equipment, machinery and other assets that are necessary for running your business.

Equipment loans can offer some of the lowest interest rates because they are typically secured by the equipment you purchase. This lowers the risk for the lender by allowing them to take possession of the asset if you default on the loan.

Equipment loans are offered by specialized financing companies as well as traditional banks.

How to get a low-interest business loan

1. Evaluate your qualifications

For most low-interest business loans, you’ll need to meet strict eligibility criteria in order to qualify. In general, you should be able to meet the following requirements:

  • Credit score: 650 or higher.

  • Time in business: Two years or more.

  • Annual revenue: $100,000 or more.

You may also need to provide physical collateral.

Specific business loan requirements will vary based on your lender and loan type. Typically, bank loans will be the most difficult to qualify for, followed by SBA and online loans. Nonprofits and microlenders, on the other hand, may be more flexible with their eligibility criteria.

2. Research your options

Once you have a better understanding of your business’s qualifications, you can research and explore different small-business lenders. You’ll want to consider the loan types offered, interest rates, repayment terms, maximum loan amounts and funding speed, among other factors.

If you can qualify, a bank or SBA loan will likely offer the lowest interest rates and most competitive repayment terms. However, both of these types of loans will require a detailed application and will be slow to fund.

Online loans will be a worthwhile alternative if you want faster financing and a streamlined application process.

3. Compare loan offers

You should always compare multiple loan offers to make sure that you’re getting the best deal for your business — especially when you’re looking for the lowest interest rate.

The best way to compare business loan rates is to use the annual percentage rate, or APR. This number includes your interest rate, as well as additional loan fees.
Not all lenders express the cost of their financing as an APR, however. Some may use a simple interest rate or even a factor rate. In this case, you’ll want to calculate the rate into an APR so that you can get a better understanding of how much the loan costs and how it compares to other options.

While getting the lowest interest rate will typically save you on interest expense, you also want to consider the monthly payment requirement and whether the amount fits into your business budget.

Where to get a low-interest business loan

Banks and credit unions

Typically, banks and credit unions offer the lowest rates on business loans — as well as long repayment terms and large loan amounts. Bank of America, for example, offers an unsecured business term loan starting at $10,000 with terms up to five years. Interest rates will vary, but they can start as low as 7.50%.
However, business bank loans are generally the most difficult to qualify for, and they can be slow to fund. You’ll typically need at least two years in business, strong finances and a personal credit score of 700 or higher to get one of these low-interest loans. Banks and credit unions may also require you to put up collateral to secure the loan.

Although you’ll still need strong credit and financials, an existing relationship with a bank or credit union can help you access loans with competitive rates and terms — and it may even speed up the application process.

🤓 Nerdy Tip

In addition to your credit score and business financials, other factors such as the federal funds rate, current market conditions and lender policies, can also influence the interest rate you’re offered.

SBA lenders

SBA lenders, usually banks and credit unions, offer SBA loans in addition to their own business loans. The government guarantee reduces the risk for these lenders, making them more likely to work with small businesses.

Although specifics can vary based on the type of loan, SBA loans generally have low interest rates, long repayment terms and large loan amounts — similar to bank loans. The most popular SBA loan program, the 7(a) program, offers loans of up to $5 million with terms up to 25 years, for example.

Per SBA guidelines, interest rates on these loans are based on the market prime rate, plus a markup rate known as the spread. Currently, interest rates on SBA 7(a) loans can range between

11.5

% to

15

%.

Compared to bank loans, SBA loans may be somewhat easier to qualify for, but in most cases, you’ll still need good credit, solid finances and a few years in business to get financing. These loans are also slow to fund, taking anywhere from one to three months to complete the application and funding process.

If you’re looking for an expedited option, the SBA Express loan can offer loans up to $500,000. All SBA Express lenders have the authority to approve, process and close loans without the SBA’s review.

Online lenders

Some online lenders can offer low-interest business loans. And with streamlined application processes, certain lenders can offer financing in as little as two business days.

For instance, Funding Circle offers term loans up to $500,000 with a repayment period up to seven years. Interest rates will depend on your business’s qualifications, among other factors, but they generally range between

15.22

% to

45

%. You can complete the entire application online, work with an account manager to explore your options and receive funding in just two days.

Typically, online lenders have more flexible requirements than bank or SBA loans. However, to qualify for the lowest rates and most competitive terms from an online lender, you’ll need to be an established business with good credit and strong finances.
Of course, there are online lenders that are willing to work with newer businesses or those with fair or bad credit. Note though, that interest rates on these loans can range significantly — anywhere from 6% to 99% — so you should always compare several different financing options and think carefully about how much debt you can realistically afford.

Nonprofit organizations and microlenders

Nonprofit organizations and microlenders can be another source for low-interest loans. For example, the nonprofit Accion Opportunity Fund offers a working capital loan starting at an interest rate of

8.49

% that may be easier for a small business to qualify for.

Depending on the lender and products offered, loan amounts can be smaller and interest rates may be higher than bank or SBA loans, but these lenders can be a good option if you can’t qualify for those types of funding.

Nonprofits and microlenders tend to focus their lending efforts on traditionally underserved businesses, including women- and minority-owned businesses and those located in low-income communities. Some organizations also work with startups or businesses with bad credit (a score of below 630).
For example, CDC Small Business Finance is a nonprofit that specializes in financing for new and underserved businesses in Arizona, California and Nevada, as well as Atlanta, Dallas-Fort Worth, Detroit, Miami and Washington, D.C. Loans range from $10,000 to $350,000, with terms from five to 10 years and interest rates ranging from the prime rate plus 4.5% to 5%.

Alternatives to low-interest business loans

If you can’t qualify for one of these low-interest business loans — or you simply want to explore alternative options — there are other types of affordable financing you can consider. Here are a few possibilities.

  • Business grants. Small-business grants are essentially free financing, since you don’t have to repay the money you receive. Grants can be a particularly good option for businesses focused on technology, research and development, and projects in their local community. However, finding and applying for business grants is often time-consuming and competitive, so this type of financing may not be suitable for all businesses.
  • Personal loans. If you have good personal credit, but you’re just starting your company, you might use a personal loan for your business. Instead of relying on your time in business and revenue, personal loan providers will focus on your income and personal credit history. These loans also tend to have lower APRs than many online alternative lenders, but defaulting on them could hurt your personal credit score and put your personal assets at risk.
  • Business credit cards. Business credit cards are a good option for financing recurring or everyday purchases. You can use your credit card to pay for business expenses, plus you can earn rewards — like cash back — for your spending. You’ll want to make sure that you can pay your bill every month, however. Otherwise, you’ll start accumulating interest on your balance. To qualify for a business credit card, you’ll typically need good personal credit, but you don’t need to have an established business history.

Find the right business loan

The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose. NerdWallet recommends comparing small-business loans to find the right fit for your business.



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