Whether you’re looking for financing to help pay for equipment upgrades or to launch a new business, understanding current business loan rates and different loan types will help you choose the loan option that’s right for you.
The overall cost of obtaining a business loan can vary greatly depending on different loan options and interest rate ranges.
The right choice depends on how soon you need the money, the interest rate you qualify for, and whether your business can afford the payments.
How do business loan rates work?
Think of interest rate as the cost of borrowing money from a lender. The term of your loan, the type of loan (i.e. fixed or variable), and the interest rate all affect your finance charges. However, it helps if you also consider other factors, including the loan term and amortization schedule.
To calculate the base interest you would pay if you didn’t pay off your loan early, you can use the following equation:
Loan principal X interest rate X Number of years in office = total interest paid
There are several other factors that affect the total cost of a loan. To get a complete idea of the cost of a business loan, you can ask your lender for an amortization schedule or look it up online.
element ratio
Some forms of business financing, such as cash advances, use factor rates rather than interest rates. Unlike an interest rate, the factor rate is a decimal that applies to the original funding amount rather than the remaining balance. For example, if you take a $20,000 cash advance with a factor of 1.5, the total repayment amount will be $30,000.
factoring fee
The factoring fee is a one-time payment calculated as a percentage of the total value of the factored receivables.
Now, let’s look at some of the interest rates available to small businesses today.
How to find the right business loan.
There are many types of loans, and some have higher approval standards than others. For example, traditional bank loans and Small Business Administration loans require the business to be two years old.
Here are a few types of business loans/financing available to businesses:
- General term loan: These typically have stricter approval requirements and are only available to businesses that have been operating for at least six months. These loans can have variable or fixed interest rates and typically require monthly payments and a set repayment date.
- Small Business Administration Loans: SBA loans are designed for more established companies, provide funding for a variety of projects, and are backed by the Small Business Administration. As a result, their interest rates may be lower, but the approval process tends to be longer.
- Business cash advance: Business cash advances provide quick access to funds, but are more expensive. These loans are repaid using a percentage of business income.
- Business credit limit: This gives business owners flexibility in how they use their funds. You don’t need to use it all at once, you can continue to borrow it after paying it off. Lines of credit may have daily, weekly or monthly interest rates, which can vary widely depending on the term of the loan.
- Accounts Receivable Financing: This option provides business financing using your business’s unpaid invoices as collateral.
Depending on how you use your money, how quickly you need it, and how quickly you pay it off, you can choose the type of loan that’s best for you.
Current average business loan interest rates.
Average business loan interest rates will vary based on loan type, business creditworthiness, loan term, and economic factors.
Here are the current average business loan rates:
| Loan/Financing Type | average interest rate |
| business credit line | 8% – 60% |
| business term loan | 8.49% – 36% |
| Factoring of accounts receivable | 3%+ (factoring fee) |
| business cash advance | 1.08+ (factor rate) |
| Equipment financing | 7.5% – 24% |
| SBA loan types | interest rate |
| Small Business Administration 7(a) | The maximum interest rate depends on the loan amount. Variable rate loans are 10.5% – 14.0%* Fixed interest rates are 12.5% – 15.5%. |
| SBA CAP line | The maximum interest rate depends on the loan amount. Variable rate loans are 10.5% – 14.0%* Fixed interest rates are 12.5% – 15.5%. |
| SBA CDC/504 | Tied to the 10-year U.S. Treasury bond rate |
| SBA disaster loan | Maximum interest rate 4%, no line of credit elsewhere Interest rates up to 8%, credit available elsewhere |
| SBA Export Working Capital Program | No maximum limit set |
| Small Business Administration Micro Loans | 8% – 13% |
SBA loan interest rates
If you are looking for a business loan now, you should consider the different interest rates and choose the one that works best for you. Your loan will depend on many factors that affect your interest rate, including your business or personal credit.
Term length and interest rate.
40% interest rate? oops. If the above rates shock you, it will help you to understand the differences between the following rates Total interest paid vs. interest rate.
While home mortgages typically have lower interest rates, the loan takes years or decades to pay back, and the total interest paid increases over time. Many business loans are paid off in six months to a year, so even if the interest rate is higher, the total interest rate paid will be similar to a loan with a lower interest rate.
| Loan type | interest% | Financing amount | Total interest paid |
| 5 year loan | 8.95% | $30,000 | $7,325 |
| 6 months loan | 26% | $30,000 | $7,800 |
What is the true cost of a business loan?
Your interest rate is only a portion of the cost of the loan for your business. Depending on the loan type and lender, you may need to pay additional fees.
These costs may include:
- Origination fee for processing your loan application
- Underwriting fee
- Checkout fees
- Early repayment fees or fees for refinancing a loan later
It’s important to read the loan agreement before signing and have a thorough understanding of the total cost of the loan, as these other business loan fees may change the cost of your loan.
To understand the cost of your loan, you’ll want to look at the annual percentage rate, which includes the percentage rate as well as other loan fees such as origination fees, underwriting fees, and closing fees. Not all lenders will offer an APR, so to accurately compare options, make sure you understand how they calculate percentages.
Fixed interest rate and floating interest rate
Another factor that affects the overall cost of a business loan is whether its interest rate is variable or fixed.
A fixed-rate loan will have a consistent interest rate and monthly payments. It does not change during the life of the loan. A one-time loan usually comes with a fixed interest rate.
An adjustable-rate loan may initially have a lower interest rate, but the interest rate changes based on an index that fluctuates with the market. So if the underlying market goes up, your variable rate goes up too. This can make it difficult to budget or anticipate payments each month.
How to get the best loan rate for your business.
When looking for the best loan rate, you should look at the average APRs for different loan types to decide which loan is best for you.
Depending on what type of loan you think is best, you need to explore the best lenders and prepare to apply for a business loan.
Your final interest rate will depend on your credit history, how long you’ve been in business, and the financial health of your business. Lenders will also evaluate your business’s ability to repay the loan. Sometimes, lenders may also look at your business’s collateral to help you get a better rate.
Some online lenders may prequalify you by doing a soft pull on your credit so you know what your interest rate will be before you apply.
Ready to find a business loan?
Use a business loan calculator to help you compare different loan options and understand which one will cost your business more over the life of the loan.
Quickly compare loan offers from multiple lenders.
Application is free and will not affect your credit.
The information provided on this blog is for educational purposes only and is not intended to provide business, legal, tax or accounting advice. The views and opinions expressed in this blog are solely those of the author and do not necessarily reflect the official policy or position of Lendio. While Lendio strives to keep its content current, its content is only accurate as of the date of publication. Offers or trends may expire or may no longer be relevant.
