When you obtain a business loan, the lender will charge interest that will be repaid over the course of the loan. This rate will vary from lender to lender depending on the type of financial institution and the terms of the loan. However, generally, you can expect traditional bank loans to charge around 6.75%, and online lenders can range from 4.9% up to 30%. To understand how interest rates impact the cost of a loan, let’s look at an example. Let’s say you take out a fixed term loan of $20,000 with an interest rate of 8.99% and a 4-year term. Assuming there are no fees, your payment on this loan would be $497.61. After making a total of 48 payments you would have paid $23,885.08, meaning the total interest paid was $3,885.08. If using a fixed term loan with no prepayment penalty, consider overpaying each month if you can. By doing so, the amount that exceeds the minimum payment requirement can apply directly to the principal, thus helping you pay the loan off faster while saving on interest.
Another type of fee that lenders will charge on a business loan is a factor rate. These fees can range from 1.1 to 1.5 and represent the multiplied amount you’ll owe back to the lender. For example, a factor rate loan of $10,000 at a 1.5 factor rate would require a repayment of $15,000. While an interest loan accrues based on your monthly balance, a factor rate loan utilizes a set repayment amount based on the total value and is set at the beginning. A factor rate loan is most commonly used in alternative financing methods like merchant cash advances or invoice factoring.
The average interest rate for borrowing money can fluctuate daily due to various factors. It will also vary based on the type of loan you’re looking to secure and the institution you’re borrowing from.
The following rates are an example of what you can expect:
As you shop for the best terms and conditions for your business loan, it’s important to understand how interest rates will affect your monthly payments and overall expenses. Most business loans have an APR which is the yearly interest and fees accrued by the sum of borrowed money annually. APRs must be disclosed before a loan is funded so look out for the term.
If you borrow $10,000 with a .02% origination fee and 6.99% interest rate with a 3-year fixed term, you’ll be looking at the following costs. When the loan is initially funded, you should receive $10,000 minus the .02% origination fee. Over the life of the loan, you’ll pay about $1,114.11 in interest with a monthly payment of $308.73. If you’re able to pay more than $308.73 each month, the extra payment can go toward the principal, thus allowing you to save on interest and pay off the loan faster.
Aside from interest rates, paying fees on a business loan is common. These fees are often the administrative costs of borrowing the money, like an origination fee or a servicing fee. Each lender will have different costs associated with borrowing, but some standard fees include:
As you shop for the best loan option, make sure to read the fine print and understand each loan’s associated fees. These added fees can also sometimes be negotiated out of the terms.
When applying for a traditional financing product like a business loan or line of credit, you must pay an interest rate to borrow the money. Loans can offer either a fixed interest rate or a variable rate. With a fixed interest rate, the amount of interest you pay will stay the same throughout the loan. This is beneficial because you will clearly understand how much you owe every month. On the other hand, variable interest rates can change during the course of the loan, potentially making it difficult to know how much you’ll owe regularly.
What is the minimum interest rate for a business loan
While there is no minimum interest rate for business loans, some loans may offer rates as low as 3%. Banks compete for your business and want to make money off their lending practices, so it’s uncommon to see 0% interest rates for business loans. However, you might be able to find a low introductory rate that could change throughout the loan.
Entrepreneurs applying for a startup business loan might be surprised to find higher interest rates and fewer financing options available for them. That’s because banks can be hesitant to loan money to businesses with only a few months in business or minimal revenue. There are still several options available, and eager business owners can also apply for alternative financing methods to get the funding they need.
What is considered a “good” interest rate can change daily, as many factors can influence interest rates and cause them to fluctuate. Depending on your personal credit score, your business credit score and the type of loan you apply for, your range of interest rates can vary greatly. One of the best ways to determine what a good interest rate for your business is, is to compare personalized offers. At mySMBscore, you can compare personalized lending offers with no credit impact. Just one of the many ways that we empower business owners.
There are a few key factors that can impact the average rates for a business loan.
The easiest way to qualify for the lowest interest rate is to ensure your finances and credit score look appealing to lenders. This means that your business has a steady revenue, your expenses are low and your credit is good.
With rates fluctuating daily and by lender, getting the best rate also involves shopping around and getting quotes from multiple banks. You can use mySMBscore to find lenders that are ready and willing to work with you based on your individual pre-qualification, saving you time and money.
As banks and lenders review your application, they consider a few things to calculate the rate they offer. To get access to the best business loan rates, you should:
While there are countless online lending options to explore, the lowest interest rates are usually offered from traditional banks, credit unions or the Small Business Association programs. These rates can go as low as 3% and offer longer repayment terms, making it an appealing option for qualified borrowers. The best way to be eligible for these loans is to improve your credit score and have a profitable business. While rates as low as 3% may be advertised, expect a higher rate.
To find current and accurate business loan interest rates, you should shop around and speak directly to lenders based on your qualifications. Since interest rates will vary greatly by lender and borrower, it’s best to review several options before settling on the loan that’s right for you. With tools like mySMBscore, you can review several personalized offers at once to see what kind of rates you qualify for. MySMBscore was created to help businesses prosper through the use of artificial intelligence (AI). With access to score components, key lending metrics, credit memos, and more, you can lock in a lower cost loan for your business.