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The Average [2019] Interest Rate on a Business Loan

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Small business loan interest rates vary widely between lenders and depend on a number of factors. To find and qualify for the cheapest loans, you need to not only compare options, but also consider the qualifications of each lender. Different financial institutions will have different requirements, and also varying rates.

Stricter requirements often mean you have to go through a more complicated application process to determine if you’re eligible for the lowest rates. Here’s what you need to know to find the best interest rate on a business loan by lender and loan type.

Interest Rates

Average Small Business Loan Rates by Lender and Type

According to ValuePenguin, these are the current small business loan rates for 2019:

  • 2.55 to 5.14 percent from large national bank chains
  • 2.48 to 5.4 percent from small or regional lenders
  • 13 to 71 percent from online alternative lenders

The above rates are calculated as average annual interest rates (AIR) instead of the more familiar annual percentage rate (APR). 

The AIR represents only the cost incurred when borrowing money, whereas APR includes other expenses. These expenses include origination, closing or document processing fees, which differ by lender.

Comparing loan types provides a more detailed look at what you can expect to pay. It’s helpful if you already know what type of loan you need, or are considering two options. Here are the current average APRs for common business funding options:

  • Bank loans: 4 to 12 percent
  • SBA 7(a) loans: 7.75 to 10.25 percent
  • Lines of credit: 7 to 80 percent
  • Short-term loans: 8.5 to 80 percent
  • Medium-term loans: 7 to 30 percent
  • Online term loans: 7 to 99.7 percent
  • Merchant cash advances: 20 to 250 percent
  • Invoice factoring: 13 to 60 percent

Note that interest rates fluctuate frequently, so a lender may quote you more or less than is shown here. Some sources suggest bank loan rates may go as low as 2 or 3 percent for qualifying businesses. Banks may not have higher interest rates, but the borrowing process can often be difficult.

Additionally, many (but not all) online lenders will require a personal guarantee.

What Factors Affect Rates from Small Business Lenders?

A lot goes into how lenders price their loans, and not all qualifying merchants are able to get rock-bottom rates.

Traditional lenders like banks look at both personal and business credit score, and many require a FICO score of at least 600. However, to get low rates on small business loans, your score generally needs to be in the “good” or “excellent” range, which starts at a score of 690.

Along with your business and personal credit score, lenders also consider:

  • How long you’ve been in business
  • Your annual revenue
  • Your company’s financial history and future projections
  • How reliable you’ve been when paying off previous debts
  • The industry in which you operate
  • The requested loan amount 

These factors show how likely your business may be to default on a loan. A higher risk of defaulting translates to higher rates. 

Term length also affects how much you pay. Sometimes, a low rate spread out over a longer term costs more than a short-term loan with higher rates. This is because you’ll end up paying more in interest overall. 

Several economic factors also influence business loan rates. The market prime rate, which is the rate lenders give their most creditworthy applicants, is used as a baseline for loan costs. It currently stands at 5.5 percent but is subject to change about every six weeks. When the economy is good and businesses are taking out more loans, rates usually go up. 

Banks lower the rates again in slow times to encourage borrowing. Competition between lenders can play into just how much rates are dropped, too.

How to Qualify for Lower Small Business Loan Rates

Taking these factors into account, here are a few things you can do to get lower rates on business loans:

  • Work on establishing and building your business
  • Write up a solid business plan, or update your current plan to reflect growth
  • Present clear and realistic financial projections
  • Improve business cash flow through strategic marketing and sales tactics
  • Make on-time payments to reduce existing debt
  • Develop a good relationship with the bank through which you have your business checking account

Most of all, make sure you’re applying through a trustworthy marketplace that can help you qualify for the best deal! Look for lenders without prepayment penalties so that you can save more on interest by paying your loan off early. Being diligent with loan payments may make it possible to qualify for even lower rates in the future.

In some cases, business owners seeking funding that can’t qualify for the best rates instead opt for credit cards. While there may be a lower barrier to entry, remember that this will not give you the same funding amount as a loan.

Find Easy Small Business Loan Options Today

National Business Capital offers a number of financing programs for small business owners who either don’t meet the qualifications for bank loans or need a faster source of funding. 

Many require no minimum credit score and only a short amount of time in business. The best part: after qualifying, funding can be available in as little as 24 hours! Our marketplace helps connect you with one of over 75 lenders, allowing you to get the best deal and competitive rates. You’ll get the financing you need, without the hassle of paperwork or extended wait periods!

This funding can be used to open a new location, buy materials, hire new employees, or other growth-related expenses! You can even use a portion of the loan to fund your primary goal, and the rest for new expenses that come up.

Get started today by applying now! 

Last Updated on July 3, 2019

National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!

About the Author, Joe Camberato

Joseph Camberato, CEO at National Business Capital & Services, developed a passion for business at a young age. Joseph has a true respect for anyone who owns a business and enjoys engaging them in discussions of how they “made it happen.”

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.