This is some text inside of a div block.

Small Business Loan Interest Rates 2023

This is some text inside of a div block.


Small Business Loan Interest Rates 2023

This is some text inside of a div block.

Current Small Business Loan Interest Rates

What is a business loan interest rate?

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.

What is a business loan factor rate?

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.

What is the average interest rate for a business loan?

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:

How do typical business loan interest rates work?

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. 

How much are business loan fees?

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:

  • Origination fees: This fee can range from 1-10% and covers the cost of processing the loan, like underwriting, reviewing the application and processing the loan.
  • Servicing fees: Charged annually, this fee covers things like collection services and billing for the loan.
  • SBA guarantee fee: While you’ll benefit from lower interest rates on an SBA loan, they do have a small fee that will cost between 0.25% and 3.75% of the loan. This fee guarantees the loan.
  • Underwriting fee: Most loans will charge an underwriting fee to assess and underwrite your application. This can either be a set amount or a percentage of the loan amount.
  • Late fees: If you fail to make a payment on time, you’ll likely be charged a late fee by your lender. This fee can be up to $40 on some loans.

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.

What is the difference between fixed and variable rates?

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.

Do startup business loans have higher rates?

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 a good interest rate on a business loan?

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.

What factors impact business loan average interest rates?

There are a few key factors that can impact the average rates for a business loan.

  1. Economic conditions:  The Federal Reserve, a government agency, determines the benchmark interest rate depending on the economy's overall health. They factor in things like inflation, job openings, consumer spending and other metrics to set the interest rate and control how the economy operates. Once they set the benchmark interest rates, banks follow suit and interest rates will vary. 
  2. Business history: The longer you’ve been in business or are able to show your business's creditworthiness, the more likely you are to access the lowest interest rates.
  3. Personal credit/finances: Borrowers that have good credit scores can qualify for the best business loan rates. By monitoring your credit score and keeping a manageable debt-to-income ratio, you will more likely get approved. Check your SMBscore to get a better understanding of what elements will help and hurt you when applying for a loan. 
  4. Secured vs. unsecured loan: If you’re concerned about qualifying for a business loan, one option could be opting for a secured loan. A secured loan involves offering up collateral to the lender in the case you fail to repay or default on your loan, and increases your approval chances. On the other hand, an unsecured loan is based only on the borrower’s qualifications and might not be available for those with bad credit.

What does it take to qualify for a low interest rate on business loans?

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.

How do you get your best business loan rates?

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:

  • Get a secured business loan. If you have collateral to offer, you should consider a secured loan that generally has lower rates than an unsecured business loan.  Banks are able to offer lower rates when they have collateral to seize if you fail to repay.
  • Improve your credit score. You can save money on interest rates if you have good credit when you apply. You can quickly improve your credit score by paying down loans, confirming your credit report is accurate and managing your debt-to-income ratio.
  • Establish a relationship with a lender. If you already have a lender you’ve worked with in the past, you might be more likely to unlock lower interest rates. Banks that can already vouch for you as a borrower may feel more comfortable lending to you.
  • Establish business credit. Along with your personal credit score, maintaining a good business credit score can improve your interest rates. You can check your business credit score using mySMBscore, giving you access to insights and suggestions on how to improve your business credit.

Which bank gives the lowest interest on business loans?

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. 

Where can I find business loan interest rates today?

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. 

Unlock low interest rate business loans. . . find personalized offers at mySMBscore now!

Top Loans